Ballinger Keeps the Beat at the Surplus Lines Stamping Office of Texas

Phil Ballinger, executive director of the Surplus Lines Stamping Office of Texas, knows a lot about rhythm. He was a drummer with the Van Wilks Band long before he joined SLOT, and while he put down his drumsticks years ago he keeps the office on track — an efficient and effective one — with a beat of its own.

SLSOT marks its 20th anniversary in 2008 and Ballinger has been on board at the organization for much of that time. The stamping office was established by the Texas legislature in 1987, Ballinger explained, after the Texas Surplus Lines Association, concerned that the growing surplus lines market needed more oversight, sponsored legislation to create the organization. It opened its doors July 1, 1988.

Ballinger was recruited in 1992 from his job as director of tax administration at the Texas Department of Insurance to serve as director of technical services for the stamping office. He moved into the executive director slot in 1999, when then-general manager Charlie Tea retired.

He said in 1987 the industry was at the end of a “pretty hard market” and some people were concerned about certain activities in the market.

“There was a concern that maybe this was a market that needed some additional oversight,” Ballinger said. “It was also the time that the state was itself coming out of a very bad budget crisis.”

SLSOT was “unique at the time because we would be the only stamping office that would be separate and distinct from the surplus lines association in the state,” Ballinger said. All the other stamping offices, such as those in California, Colorado and Illinois were part of the surplus lines associations in those states, he explained. Believing that such an entity “would not pass muster in Texas at that time,” the bill was crafted make the office “a stand-alone entity although still responsible for working closely with the agents association but also with state regulators.”

Ballinger said SLSOT’s mission statement is two-fold. The first responsibility of the organization “is to encourage compliance by agents and insurers with the surplus lines laws and regulations of the state of Texas,” he said. “The second is to assist the department of insurance in the oversight of the surplus lines marketplace.”

He said the office evaluates non-admitted insurers for eligibility to operate in the state. It also receives, reviews and records every surplus lines policy written in Texas. Plus, it serves as an educational resource for surplus lines agents and companies.

He emphasized that while the office is not a state agency and is not funded by state revenues, it is supervised by the commissioner of insurance.

“That’s done a few ways,” Ballinger said. “Number one the commissioner appoints my board of directors. And that is a nine-member board, five industry members and four public members. And the public members must all have at least three years’ experience in the purchase of commercial insurance. So, in other words, they’re typically risk managers …

“Second, the commissioner is the one who approves the stamping fee rate. The board of directors will recommend a rate but it is the commissioner that ultimately approves it and sets the rate through a commissioner order.

“Finally, our annual budget is sent every year to the commissioner. Not for approval, because it’s already adopted by the board in the fall every year … but just for purposes of them being able to see how we are projecting to spend money.”

He added that once the yearly audit of the office is approved by the board, it is forwarded to the commissioner. “So the commissioner and the department have a variety of ways to review the operations of the office,” he said.

Stamping Fees

The funds generated by the fees charged on policies filed with the stamping office go solely toward the operation of the office. The current stamping fee is 0.06 percent, or 60 cents per every $1,000 in policy premium. The rate has not always been that low. The first stamping fee rate was 0.4 percent. But while the stamping fee has dropped, the surplus lines market has ballooned. SLOT processed $207.8 million in premium and 49,000 surplus lines policies in 1988; by 2007 those numbers had grown to $3.7 billion and more than 448,000 policies by year end.

Though none of the money from the stamping fee goes to the state, regulators do have a say in how much money the office can have in reserve.

“In hard markets it’s common for a reserve to be built up because there’s so much business at higher premium rates that flows through the office,” Ballinger explained. “We are one of the few [state stamping offices] with a cap on the amount of reserves that we are permitted to have. … We are not allowed to have a reserve that exceeds … basically five times our annual operating expenses. During the hard market we exceeded that, like virtually every other stamping office did.” He said the way to decrease reserves is to lower the stamping fee rate, which SLSOT did in mid-2007.

Big Money, Big Changes

Ballinger acknowledged there have been big changes in the Texas surplus lines industry since his tenure began, not the least of which is the fact that the money recorded by the office has tripled in the past 15 or 16 years.

In addition to monetary increases, there has been “a noticeable increase in professionalism,” in the industry over the years, Ballinger said. Also, “the financial wherewithal of surplus line insurers has improved. Certainly their capital surplus, the size, the expertise — all of that — of surplus lines insurers has increased.”

Another big change, he said, is that there are many more agents and agencies in Texas now. “It used to be in ’92 that only residents, only Texas residents, could get a surplus lines license. Then with the passage of Graham-Leach-Bliley, non-residents could obtain a non-resident surplus lines license and so we now have close to 4,000 agents and agencies that are licensed in Texas. At least a third are non-resident.”

Comparison of SLSOT Premium Processed by Line of Business

Note: Due to rounding figures may not total
Source: Surplus Lines Stamping Office of Texas