US Laws, Codes, Statutes & Cases

                                  TITLE  41
                                  INSURANCE
                                  CHAPTER 17
                           BUSINESS TRANSACTED WITH
                          BROKER CONTROLLED INSURER
    41-1704.  MINIMUM STANDARDS. (1) The provisions of this section:
    (a)  Shall apply if, in any calendar year, the aggregate amount of gross
    written premium on business placed with a controlled insurer by a
    controlling broker is equal to or greater than five percent (5%) of the
    admitted assets of the controlled insurer, as reported in the controlled
    insurers' quarterly statement filed as of September 30 of the prior year.
    (b)  Notwithstanding paragraph (a) of this subsection, the provisions of
    this section shall not apply if:
         (i)  The controlling broker:
              1.  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 such insurance; and
              2.  Accepts insurance placements only from nonaffiliated
              subbrokers, and not directly from insureds; and
         (ii)  The controlled insurer, except for insurance business written
         through a residual market facility, accepts insurance business only
         from a controlling broker, a broker controlled by a controlled
         insurer, or a broker that is a subsidiary of the controlled insurer.
    (2)  Required contract provisions. A controlled insurer shall not accept
business from a controlling broker and a controlling broker shall not place
business with a controlled insurer unless there is a written contract between
the controlling broker and the insurer specifying the responsibilities of each
party, which 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 broker. The controlled insurer shall
    suspend the authority of the controlling broker to write business during
    the pendency of any dispute regarding the cause for the termination;
    (b)  The controlling broker 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 broker;
    (c)  The controlling broker 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 thereof 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 controlling broker 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
    law as applicable. However, funds of a controlling broker not required to
    be licensed in this state shall be maintained in compliance with the
    requirements of the controlling broker's domiciliary jurisdiction;
    (e)  The controlling broker 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 broker;
    (g)  The controlled insurer shall provide the controlling broker 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 broker 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 broker other than the
    controlling broker;
    (h)  The rates and terms of the controlling broker'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
    brokers other than controlling brokers. For purposes of this subsection
    and subsection (2) (g) of this section, 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;
    (i)  If the contract provides that the controlling broker, 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 (4) (a) of this section;
    (j)  A limit on the controlling broker'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 broker when the applicable limit is
    approached and shall not accept business from the controlling broker if
    the limit is reached. The controlling broker shall not place business with
    the controlled insurer if it has been notified by the controlled insurer
    that the limit has been reached; and
    (k)  The controlling broker may negotiate but shall not bind reinsurance
    on behalf of the controlled insurer on business the controlling broker
    places with the controlled insurer, except that the controlling broker 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 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 director 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
    director an opinion of an independent casualty actuary (or such other
    independent loss reserve specialist acceptable to the director) 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 (including incurred but not reported) on business placed by
    the broker; and
    (b)  The controlled insurer shall annually report to the director the
    amount of commissions paid to the broker, the percentage such amount
    represents of the net premiums written and comparable amounts and
    percentage paid to noncontrolling brokers for placements of the same kinds
    of insurance.