Unauthorized Insurance

Every unauthorized insurer must file the Texas Annual Insurance Tax Report (Form 25-108) (PDF) and its supplement (Form 25-123) (PDF). The form is due on or before March 1 following the calendar year in which the insurance was effectuated, continued or renewed. If the due date falls on a Saturday, Sunday or legal holiday, the next business day is the due date.

All insurance activities in Texas outside of the licensed market are unauthorized insurance unless they fall within the legislative safe harbors of surplus lines or independently procured insurance.

An unauthorized insurance transaction is an activity performed in Texas by an insurer or person not holding a valid certificate of authority to do an insurance business in this state; or transacting business not authorized by a valid certificate. While not an exhaustive list, the following activities in Texas are examples of acts that constitute the business of insurance:

  • issuing or delivering contracts of insurance to residents of Texas;
  • soliciting applications for such contracts; or
  • collecting premiums, membership fees, assessments or other consideration for such contracts.

Activities performed in Texas by a nonadmitted captive insurance company (insuring only its parent or affiliates) are unauthorized transactions, as the captive insurer is not authorized by the Department of Insurance. The regulatory prohibitions and sanctions applicable to unauthorized insurance transactions do not apply to the nonadmitted captive insurance company. There is still unauthorized insurance premium tax due on this business.

Exceptions and exclusions from tax include premiums on risks or exposures properly allocated to federal waters, international waters, or under the jurisdiction of a foreign government. In addition, there are certain federal preemptions from state taxation for the Federal Deposit Insurance Corporation (FDIC) when it is the receiver of a failed financial institution that holds the property being insured, a federally chartered credit union, the National Credit Union Administration (NCUA) when it is the conservator or liquidating agent for a federally chartered credit union and risks or exposures of Indian Tribal Nations that are located within the borders of Tribal Lands. Refer to Surplus Lines Tax Exemptions/Preemptions (Pub. 94-142) for more information.

*Originally published in the May edition of Tax Policy News – a monthly newsletter about Texas tax policy at http://www.window.state.tx.us/taxinfo/taxpnw/tpn2012/tpn1205.html

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