§ 510A.4 — Minimum standards

Iowa § 510A.4

• Jurisdiction: Iowa
• Title XIII: COMMERCE
• Ch. 510A: BUSINESS PRODUCER CONTROLLED PROPERTY AND CASUALTY INSURERS

Text

1. Applicability of section.
a. This section applies 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
§510A.4, BUSINESS PRODUCER CONTROLLED PROPERTY AND CASUALTY INSURERS 2
or greater than five percent of the admitted assets of the controlled insurer, as reported in the
controlled insurer’s quarterly statement filed as of September 30 of the preceding year.
b. Notwithstanding paragraph “a”, this section does not apply if both of the following
apply:
(1) The controlling producer does all of the following:
(a) Places insurance only with the controlled insurer, or only with the controlled insurer
and members of the controlled insurer’s holding company system, or the controlled insurer’s
parent, affiliate, or subsidiary, and receives no compensation based upon the amount of
premiums written in connection with such insurance.
(b) Accepts insurance placements only from nonaffiliated subproducers and not directly
from insureds.
(2) The controlled insurer, except for insurance business written through a residual
market facility, accepts insurance business only from the controlling producer, an insurance
producer controlled by the controlled insurer, or an insurance producer that is a subsidiary
of the controlled insurer.
2. Required contract provisions. 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 has been approved by the board
of directors of the controlled insurer and filed with the commissioner. The contract must
contain, at a minimum, the following provisions:
a. The controlled insurer may terminate the contract for cause, upon written notice to the
controlling producer. 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. The due date shall be fixed so that premiums
or installments of premiums 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. However, 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 jurisdiction.
e. The controlling producer shall maintain separately identifiable records of business
written for the controlled 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. The controlling producer shall adhere to
the standards, rules, procedures, rates, and conditions. The standards, rules, procedures,
rates, and conditions shall be the same as those applicable to comparable business placed
with the controlled insurer by an insurance producer other than the controlling producer.
h. The rates and terms of the controlling producer’s commissions, charges, or other fees
and the purposes for those charges or fees. 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 and paragraph “g” of this subsection, “comparable business” includes 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 controlled insurer, is to be compensated contingent upon the insurer’s profits on that
3 BUSINESS PRODUCER CONTROLLED PROPERTY AND CASUALTY INSURERS, §510A.6
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 subsection 4, paragraph “a”.
j. A limit on the controlling producer’s writings in relation to the controlled insurer’s
surplus and total writings. The insurer may establish a different limit for each line or subline
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 which would
exceedthelimit. Thecontrollingproducershallnotplacebusinesswiththecontrolledinsurer
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. A controlled insurer must establish an audit committee of the board
of directors composed of independent directors. Prior to approval of the annual financial
statement, the audit committee shall 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 another independent loss reserve specialist acceptable to
the commissioner, reporting loss ratios for each line of business written and attesting to the
adequacy of loss reserves established for losses incurred and outstanding as of year-end on
business placed by the insurance producer, including incurred but not reported losses.
b. The controlled insurer shall annually report to the commissioner the amount of
commissions paid to the insurance 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.