Download as PDF
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
controlling producer in a fiduciary capacity, in one (1) or more
(e)
(f)
(g)
(h)
(i)
(j)
(k)
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
(3)
(4)
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, 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.
Disclaimer: These codes may not be the most recent version. Kentucky may have more current or accurate information. We make no warranties or guarantees about the accuracy, completeness, or adequacy of the information contained on this site or the information linked to on the state site. Please check official sources.