§ 1801 Short title.
This chapter may be cited as the "Managing General Agents Act.''
§ 1802 Definitions.
As used in this chapter:
(1) "Actuary'' means a person who is a member in good standing of the American Academy of Actuaries.
(2) "Insurer'' means any person, firm, association or corporation duly licensed in this State as an insurance company pursuant to Chapter 17 of this title.
(3) "Managing general agent'' ("MGA'') means any person, firm, association or corporation who negotiates and binds ceding reinsurance contracts on behalf of an insurer or manages all or part of the insurance business of an insurer (including the management of a separate division, department or underwriting office) and acts as an agent for such insurer whether known as a managing general agent, manager or other similar term, who, with or without the authority, either separately or together with affiliates, produces, directly or indirectly, and underwrites an amount of gross direct written premium equal to or more than 5 percent of the policyholder surplus as reported in the last annual statement of the insurer in any 1 quarter or year together with 1 or more of the following:
a. Adjusts or pays claims in excess of an amount determined by the Commissioner; or
b. Negotiates reinsurance on behalf of the insurer.
Notwithstanding the above, the following persons shall not be considered as MGAs for the purposes of this chapter:
a. An employee of the insurer;
b. A United States manager of the United States branch of an alien insurer;
c. An underwriting manager which, pursuant to contract, manages all or part of the insurance operations of the insurer, is under common control with the insurer, subject to the holding company regulatory act and whose compensation is not based on the volume of premiums written without regard for the profitability of the business written;
d. The attorney-in-fact authorized by, and acting for, the subscribers of a reciprocal insurer of interinsurance exchange under powers of attorney.
(4) "Underwrite'' means the authority to accept or reject risk on behalf of the insurer.
§ 1803 Licensure.
(a) No person, firm, association or corporation shall act in the capacity of an MGA with respect to risks located in this State for an insurer licensed in this State unless such person is a licensed producer in this State.
(b) No person, firm, association or corporation shall act in the capacity of an MGA representing an insurer domiciled in this State with respect to risks located outside this State unless such person is licensed as a producer in this State (such license may be a nonresident license) pursuant to this chapter.
(c) The Commissioner may require a bond in an amount acceptable to the Commissioner for the protection of the insurer.
(d) The Commissioner may require the MGA to maintain an errors and omissions policy.
§ 1804 Required contract provisions.
No person, firm, association or corporation acting in the capacity of an MGA shall place business with an insurer unless there is in force a written contract between both parties which sets forth the responsibilities of each party and where both parties share responsibility for a particular function, specifies the division of such responsibilities and which contains the following minimum provisions:
(1) The insurer may terminate the contract for cause upon written notice to the MGA. The insurer may suspend the underwriting authority of the MGA during the pendency of any dispute regarding the cause for termination.
(2) The MGA will render accounts to the insurer detailing all transactions and remit all funds due under the contract to the insurer on not less than a monthly basis.
(3) All funds collected for the account of an insurer will be held by the MGA in a fiduciary capacity in a bank which is a member of the Federal Reserve System. This account shall be used for all payments on behalf of the insurer. The MGA may retain no more than 3 months estimated claims payments and allocated loss adjustment expenses.
(4) Separate records of business written by the MGA will be maintained. The insurer shall have access and right to copy all accounts and records related to its business in a form usable by the insurer and the Commissioner shall have access to all books, bank accounts and such records of the MGA in a form usable to the Commissioner. Such records shall be retained until completion of the insurer's triennial financial examination.
(5) The contract may not be assigned in whole or part by the MGA.
(6) Appropriate underwriting guidelines including:
a. The maximum annual premium volume;
b. The basis of the rates to be charged;
c. The types of risks which may be written;
d. Maximum limits of liability;
e. Applicable exclusions;
f. Territorial limitations;
g. Policy cancellation provisions; and
h. The maximum policy period.
The insurer shall have the right to cancel or nonrenew any policy of insurance subject to the applicable laws and regulations.
(7) If the contract permits the MGA to settle claims on behalf of the insurer:
a. All claims must be reported to the company in a timely manner.
b. A copy of the claim file shall be sent to the insurer at its request or as it becomes known that the claim:
1. Has the potential to exceed an amount determined by the Commissioner or exceeds the limit set by the company, whichever is less;
2. Involves a coverage dispute;
3. May exceed the MGA's claims settlement authority;
4. Is open for more than 6 months; or
5. Is closed by payment of an amount set by the Commissioner or an amount set by the company, whichever is less.
c. All claim files will be the joint property of the insurer and MGA. However, upon an order of liquidation of the insurer, such files shall become the sole property of the insurer or its estate; the MGA shall have reasonable access to and the right to copy the files on a timely basis.
d. Any settlement authority granted to the MGA may be terminated for cause upon the insurer's written notice to the MGA or upon the termination of the contract. The insurer may suspend the settlement authority during the pendency of any dispute regarding the cause for termination.
(8) Where electronic claims files are in existence, the contract must address the timely transmission of the data.
(9) If the contract provides for a sharing of interim profits by the MGA, and the MGA has the authority to determine the amount of the interim profits by establishing loss reserves or controlling claim payments, or in any other manner, interim profits will not be paid to the MGA until 1 year after they are earned for property insurance business and 5 years after they are earned on casualty business and not until the profits have been verified pursuant to § 1805 of this title.
(10) The MGA shall not:
a. Bind reinsurance or retrocessions on behalf of the insurer, except that the MGA may bind facultative reinsurance contracts pursuant to obligatory facultative agreements if the contract with the insurer contains reinsurance 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;
b. Commit the insurer to participate in insurance or reinsurance syndicates;
c. Appoint any producer without assuring that the producer is lawfully licensed to transact the type of insurance for which the producer is appointed;
d. Without prior approval of the insurer, pay or commit the insurer to pay a claim over a specified amount, net of reinsurance, which shall not exceed 1 percent of the insurer's policyholder's surplus as of December 31 of the last completed calendar year;
e. Collect any payment from a reinsurer or commit the insurer to any claim settlement with a reinsurer, without prior approval of the insurer. If prior approval is given, a report must be promptly forwarded to the insurer;
f. Permit its subproducer to serve on the insurer's board of directors;
g. Jointly employ an individual who is employed with the insurer; or
h. Appoint a sub-MGA.
§ 1805 Duties of insurers.
(a) The insurer shall have on file an independent financial examination, in a form acceptable to the Commissioner, of each MGA with which it has done business.
(b) If an MGA establishes loss reserves, the insurer shall annually obtain the opinion of an actuary attesting to the adequacy of loss reserves established for losses incurred and outstanding on business produced by the MGA. This is in addition to any other required loss reserve certification.
(c) The insurer shall periodically (at least semiannually) conduct an on-site review of the underwriting and claims processing operations of the MGA.
(d) Binding authority for all reinsurance contracts or participation in insurance or reinsurance syndicates shall rest with an officer of the insurer, who shall not be affiliated with the MGA.
(e) Within 30 days of entering into or termination of a contract with an MGA, the insurer shall provide written notification of such appointment or termination to the Commissioner. Notices of appointment of an MGA shall include a statement of duties which the applicant is expected to perform on behalf of the insurer, the lines of insurance for which the applicant is to be authorized to act, and any other information the Commissioner may request.
(f) An insurer shall review its books and records each quarter to determine if any producer, as defined by § 1802(3) of this title, has become, by operation of § 1802(3) of this title, an MGA as defined in that section. If the insurer determines that a producer has become an MGA pursuant to the above, the insurer shall promptly notify the producer and the Commissioner of such determination and the insurer and producer must fully comply with this chapter within 30 days.
(g) An insurer shall not appoint to its board of directors an officer, director, employee, subproducer or controlling shareholder of its MGAs. This subsection shall not apply to relationships governed by the Insurance Holding Company Act or, if applicable, the Broker Controlled Insurer Act.
§ 1806 Examination authority.
The acts of the MGA are considered to be the acts of the insurer on whose behalf it is acting. An MGA may be examined as if it were the insurer. An MGA shall retain all records pertaining to a specific insurer until the conclusion of the regular financial examination on that insurer by the domestic regulator.
§ 1807 Penalties and liabilities.
(a) If the Commissioner finds after a hearing conducted in accordance with the Administrative Procedures Act [Chapter 100 of Title 29] that any person has violated any provision or provisions of this chapter, the Commissioner may order:
(1) For each separate violation, a penalty in an amount of $15,000;
(2) Revocation or suspension of the producer's license; and
(3) The MGA to reimburse the insurer, the rehabilitator or liquidator of the insurer for any losses incurred by the insurer caused by a violation of this chapter committed by the MGA.
(b) The decision, determination or order of the Commissioner pursuant to subsection (a) of this section shall be subject to judicial review pursuant to the Administrative Procedures Act [Chapter 100 of Title 29].
(c) Nothing contained in this section shall affect the right of the Commissioner to impose any other penalties provided for in the Insurance Law.
(d) Nothing contained in this chapter is intended to or shall in any manner limit or restrict the rights of policyholders, claimants and auditors.
§ 1808 Rules and regulations.
The Commissioner of Insurance may adopt reasonable rules and regulations for the implementation and administration of this chapter.
§ 1809 Effective date.
This chapter shall take effect on September 30, 1991. No insurer may continue to utilize the services of an MGA on and after September 30, 1991, unless such utilization is in compliance with this chapter.