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304.3-410 Applicability -- Contract between insurer and controlling producer -Audit committees -- Reporting requirements.
(1)
(2)
The applicability of this section is as follows:
(a) The provisions of this section shall only 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 (5%) of the admitted assets of the controlled insurer, as reported in the
controlled insurer's quarterly statement filed as of September 30 of the
immediate preceding year; and
(b) Notwithstanding paragraph (a) of this subsection, the provisions of this
section shall not apply if:
1.
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 the controlled insurer's
parent, affiliate, or subsidiary and receives no compensation based
upon the amount of premiums written in connection with the
insurance; and
b.
Accepts insurance placements only from nonaffiliated
subproducers, and not directly from insureds; and
2.
The controlled insurer, except for insurance business written through a
residual market mechanism, 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.
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 insurer specifying the
responsibilities of each party, and the contract has been approved by the board of
directors of the insurer and contains the following minimum 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 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 collected shall be remitted no
later than ninety (90) 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
(e)
(f)
(g)
(h)
(i)
(j)
(k)
controlling producer in a fiduciary capacity, in one (1) or more appropriately
identified bank accounts in banks that are members of the federal reserve
system, in accordance with the provisions of the insurance code, as applicable.
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;
The controlling producer shall maintain separately identifiable records of
business written for the controlled insurer;
The contract shall not be assigned in whole or in part by the controlling
producer;
The controlled insurer shall provide the controlling producer with its
underwriting standards, rules and procedures, and with manuals stating 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 a producer other than the controlling producer;
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
commissions, charges, and other fees shall be no greater than those applicable
to comparable business placed with the controlled insurer by producers other
than the controlling producers. For purposes of this paragraph and paragraph
(g) of this subsection, examples of "comparable business" include the same
lines of insurance, same kinds of insurance, same kinds of risks, similar policy
limits, and similar quality of business. This paragraph does not authorize
controlling producers to charge fees which the controlling producer is not
otherwise permitted to charge under the provisions of the insurance code;
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 (5) years after the premiums on liability insurance are
earned and at least one (1) 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 (3) of this section;
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 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; and
The controlling producer may negotiate, but shall not bind, reinsurance on
behalf of the controlled insurer on business the controlling producer places
(3)
(4)
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, for
both reinsurance assumed and ceded, which include a list of reinsurers with
automatic agreements that are in effect, the coverages and amounts or
percentages that may be reinsured, and commission schedules.
Every controlled insurer shall have an audit committee of the board of directors
composed of independent directors. The audit committee shall annually meet with
the 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.
Reporting requirements are as follows:
(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 other 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 the end of the year, including incurred
but not reported losses, on business placed by the producer; and
(b) The controlled insurer shall annually report to the commissioner the amount
of commissions paid to the producer, the percentage that amount represents of
the net premiums written, and comparable amounts and percentage paid to
noncontrolling producers for placements of the same kinds of insurance.
Effective: July 15, 2010
History: Amended 2010 Ky. Acts ch. 24, sec. 979, effective July 15, 2010. -- Created
1992 Ky. Acts ch. 157, sec. 3, effective July 14, 1992.
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