(1) Applicability of section. (a) The
provisions of this section shall apply if, in any calendar year, the aggregate amount
of gross written premium on business placed with a controlled insurer by a
controlling producer is equal to or greater than five percent of the admitted assets
of the controlled insurer, as reported in the controlled insurer's annual statement
filed as of December 31 of the prior year.
(b) Notwithstanding paragraph (a) of this subsection (1), the provisions of this
section shall not apply if:
(I) The controlling producer:
(A) Places insurance only with the controlled insurer or only with the
controlled insurer and a member or members of the controlled insurer's holding
company system or with the controlled insurer's parent, affiliate, or subsidiary and
receives no compensation in connection with such insurance; and
(B) Accepts insurance placements only from nonaffiliated subproducers, and
not directly from insureds;
(II) The controlled insurer, except for insurance business written through a
residual market facility, accepts insurance business only from a controlling
producer, a producer controlled by the controlled insurer, or a producer that is a
subsidiary of the controlled insurer.
(2) A controlled insurer shall not accept business from a controlling
producer, and a controlling producer shall not place business with a controlled
insurer, unless there is a written contract between the controlling producer and the
controlled insurer specifying the responsibilities of each party, which contract has
been approved by the board of directors of the controlled insurer and contains the
following minimum provisions:
(a) The controlled insurer may terminate the contract for cause, upon written
notice to the controlling producer; and the controlled insurer shall suspend the
authority of the controlling producer to write business during the pendency of any
dispute regarding the cause for the termination;
(b) The controlling producer shall render accounts to the controlled insurer
detailing all material transactions, including information necessary to support all
commissions, charges, and other fees received by or owing to the controlling
producer;
(c) The controlling producer shall remit all funds due under the terms of the
contract to the controlled insurer on at least a monthly basis; and the due date shall
be fixed so that premiums or installments thereof collected shall be remitted no
later than ninety days after the effective date of any policy placed with the
controlled insurer under this contract;
(d) All funds collected for the controlled insurer's account shall be held by
the controlling producer in a fiduciary capacity, in one or more appropriately
identified bank accounts in banks that are members of the federal reserve system,
in accordance with the provisions of the insurance law as applicable; and funds of a
controlling producer not required to be licensed in this state shall be maintained in
compliance with the requirements of the controlling producer's domiciliary state;
(e) The controlling producer shall maintain separately identifiable records of
business written for the controlled insurer; and such records shall be retained for a
period of five years commencing no later than the effective date of the last
financial examination of the insurer;
(f) The contract shall not be assigned in whole or in part by the controlling
producer;
(g) The controlled insurer shall provide the controlling producer with its
underwriting standards, rules and procedures, manuals setting forth the rates to be
charged, and the conditions for the acceptance or rejection of risks, which
standards, rules, procedures, rates, and conditions shall be the same as those
applicable to comparable business placed with the controlled insurer by a producer
other than the controlling producer and to which standards, rules, procedures,
rates, and conditions the controlling producer shall adhere;
(h) The rates and terms of the controlling producer's commissions, charges,
or other fees and a definition of the purposes for those charges; and the rates of the
commissions, charges, and other fees shall be no greater than those applicable to
comparable business placed with the controlled insurer by producers other than
controlling producers. For purposes of this paragraph (h) and paragraph (g) of this
subsection (2), examples of comparable business include, without limitation, the
same lines of insurance, same kinds of insurance, same kinds of risks, similar policy
limits, and similar quality of business.
(i) If the contract provides that the controlling producer, on insurance
business placed with the insurer, is to be compensated contingent upon the
insurer's profits on that business, then such compensation shall not be determined
and paid until at least five years after the premiums on liability insurance are
earned and at least one year after the premiums are earned on any other insurance.
In no event shall the commissions be paid until the adequacy of the controlled
insurer's reserves on remaining claims has been independently verified pursuant to
paragraph (a) of subsection (4) of this section.
(j) A limit on the controlling producer's writings in relation to the controlled
insurer's surplus and total writings, which limit may be different for each line or
sub-line of business. The controlled insurer shall notify the controlling producer
when the applicable limit is approached and shall not accept business from the
controlling producer if the limit is reached. The controlling producer shall not place
business with the controlled insurer if it has been notified by the controlled insurer
that the limit has been reached.
(k) The controlling producer may negotiate but shall not bind reinsurance on
behalf of the controlled insurer on business the controlling producer places with
the controlled insurer; except that the controlling producer may bind facultative
reinsurance contracts pursuant to obligatory facultative agreements if the contract
with the controlled insurer contains underwriting guidelines including, for both
reinsurance assumed and ceded, a list of reinsurers with which such automatic
agreements are in effect, the coverages and amounts or percentages that may be
reinsured, and commission schedules.
(3) Audit committee. Every controlled insurer shall have an audit committee
of the board of directors, which committee shall be composed of independent
directors. The audit committee shall annually meet with management, the insurer's
independent certified public accountants, and an independent casualty actuary or
other independent loss reserve specialist acceptable to the commissioner to review
the adequacy of the insurer's loss reserves.
(4) Reporting requirements. (a) In addition to any other required loss
reserve certification, the controlled insurer shall annually, on April 1 of each year,
file with the commissioner an opinion of an independent casualty actuary or such
other independent loss reserve specialist acceptable to the commissioner reporting
loss ratios for each line of business written and certifying to the adequacy of loss
reserves established for losses incurred and outstanding as of year-end including
incurred but not reported reserves on business placed by the producer.
(b) The controlled insurer shall annually report to the commissioner the
amount of commissions paid to the producer, the percentage such amount
represents of the net premiums written, and comparable amounts and percentage
paid to noncontrolling producers for placements of the same kinds of insurance.