Are surplus lines insurers required to maintain policyholders' surplus?

Surplus lines insurers are indeed required to maintain certain levels of financial solvency as mandated by state regulations. This is crucial because surplus lines insurance provides coverage for risks that standard insurers typically will not underwrite. To ensure that these insurers can meet their obligations to policyholders, states impose minimum capital and surplus requirements.

These regulations are designed to protect consumers by ensuring that surplus lines insurers have the financial means to pay claims when they arise. Without these requirements, there could be a greater risk of insurer insolvency, which would ultimately leave policyholders without coverage when they need it the most.

Maintaining policyholders' surplus is not merely a practice of competitiveness or an optional requirement; it is a fundamental aspect of the regulatory framework that governs surplus lines insurance. Therefore, the correct answer emphasizes the necessity of financial solvency as governed by state laws.