510A.4 - MINIMUM STANDARDS.

        510A.4  MINIMUM STANDARDS.         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 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 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 exceed the limit.  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.  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.  
         Section History: Recent Form
         91 Acts, ch 26, § 13; 91 Acts, ch 213, § 9; 92 Acts, ch 1117, §      38; 2003 Acts, ch 91, §16--18; 2004 Acts, ch 1101, §72