A California licensed agent is approached by a nonadmitted insurer to sell its policies. Under California Insurance Code Section 703:

Why A is correct

Section 703 prohibits a licensed agent or broker from transacting insurance with a nonadmitted insurer — one that has not been granted a certificate of authority by the California Commissioner. The sole exception is the surplus line market, in which specially licensed surplus line brokers may place coverage with nonadmitted insurers when the coverage is unavailable from admitted insurers. Ordinary agents may not sell for nonadmitted insurers, regardless of where the insurer is licensed in other states. The rule protects California policyholders by ensuring that the insurers they deal with are regulated, financially sound, and backed by the state's guaranty fund protections.

Why the other options are wrong

• B) Being licensed in another state does not make an insurer admitted in California; admission requires its own certificate of authority issued by the California Commissioner. Admission is a separate statutory process in each state, and California recognition does not follow automatically from another state's license.
• C) There is no premium-threshold exception in Section 703 that would allow an agent to place business with a nonadmitted insurer; the size of the premium does not matter. The restriction turns on the insurer's status as nonadmitted, and no dollar amount can make a nonadmitted insurer acceptable to transact with directly.
• D) Admission elsewhere does not permit California agents to transact with the insurer; only the surplus line exception, handled by licensed surplus line brokers, allows access to nonadmitted markets. Only the licensed surplus line broker, acting under the special surplus line law, may access nonadmitted markets under the conditions the law sets.

Memory hook

Nonadmitted = off limits to agents; surplus line brokers hold the only key.