26.1-26.5-03. Minimum standards
1. a. The provisions of this section apply if, in any calendar year, the aggregate
amount of gross written premium on business placed with a controlled insurer by
a controlling insurance broker is equal to or greater than five percent of the
admitted assets of the controlled insurer, as reported in the controlled insurers'
quarterly statement filed as of September thirtieth of the prior year.
b. Notwithstanding subdivision a, the provisions of this section do not apply if:
(1) The controlling insurance broker 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 accepts
insurance placements only from nonaffiliated insurance brokers, and not
directly from insureds.
(2) The controlled insurer, except for insurance business written through a
residual market facility, accepts insurance business only from a controlling
insurance broker, an insurance broker controlled by the controlled insurer, or
an insurance broker that is a subsidiary of the controlled insurer.
2. A controlled insurer may not accept business from a controlling insurance broker and a
controlling insurance broker may not place business with a controlled insurer unless
there is a written contract between the controlling insurance 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 insurance broker. The controlled insurer shall suspend the
authority of the controlling insurance broker to write business during the
pendency of any dispute regarding the cause for the termination.
b. The controlling insurance 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
insurance broker.
c. The controlling insurance 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 must
be fixed so that premiums or installments thereof 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 must be held by the
controlling insurance broker 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 insurance broker not required to be licensed in
this state must be maintained in compliance with the requirements of the
controlling insurance broker's domiciliary jurisdiction.
e. The controlling insurance broker shall maintain separately identifiable records of
business written for the controlled insurer.
f. The contract may not be assigned, in whole or in part, by the controlling
insurance broker.
g. The controlled insurer shall provide the controlling insurance 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 insurance broker shall adhere to the standards, rules, procedures,
rates, and conditions. The standards, rules, procedures, rates, and conditions
must be the same as those applicable to comparable business placed with the
controlled insurer by an insurance broker other than the controlling insurance
broker.
h. The rates and terms of the controlling insurance broker's commissions, charges,
or other fees and the purposes for those charges or fees. The rates of the
commissions, charges, and other fees must be no greater than those applicable
to comparable business placed with the controlled insurer by insurance brokers
other than controlling insurance brokers. For purposes of this subdivision and
subdivision g, 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 insurance broker, on insurance
business placed with the insurer, is to be compensated contingent upon the
insurer's profits on that business, then such compensation may 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 may the commissions be paid until the adequacy of
the controlled insurer's reserves on remaining claims has been independently
verified pursuant to subdivision a of subsection 4.
j. A limit on the controlling insurance 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
insurance broker when the applicable limit is approached and may not accept
business from the controlling insurance broker if the limit is reached. The
controlling insurance broker may 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 insurance broker may negotiate but may not bind reinsurance on
behalf of the controlled insurer on business the controlling insurance broker
places with the controlled insurer, except that the controlling insurance 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. 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 commissioner to review the adequacy of the insurer's loss reserves.
4. a. In addition to any other required loss reserve certification, the controlled insurer
shall annually, on April first of each year, file with the commissioner an opinion of
an independent casualty actuary, or such 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 yearend, including incurred but not
reported, on business placed by the insurance broker.
b. The controlled insurer shall annually report to the commissioner the amount of
commissions paid to the insurance broker, the percentage such amount
represents of the net premiums written, and comparable amounts and percentage
paid to noncontrolling insurance brokers for placements of the same kinds of
insurance.
