40-37a04. Written contract between controlling producer and controlled insurer required, minimum provisions; directors' audit committee, review of insurer's loss reserves; loss and commissions
40-37a04
40-37a04. Written contract between controllingproducer and controlledinsurer required, minimum provisions; directors' audit committee, review ofinsurer's loss reserves; loss and commissions information report tocommissioner; application of requirements.(a) (1) The provisions of K.S.A. 40-37a04 shall apply if, in anycalendar year, the aggregate amount of gross written premium on business placedwith a controlled insurer by a controlling producer isequal to or greater thanfive percent of the admitted assets of the controlled insurer, as reported inthe controlled insurer's quarterly statement filed as of September 30 of theprior year.
(2) Notwithstanding paragraph (1) of this subsection, the provisions of thissection shall not apply if:
(A) The controlling producer:
(i) Places insurance only with the controlled insurer, or only with thecontrolled insurer and a member or members of the controlled insurer's holdingcompany system, or the controlled insurer's parent, affiliate or subsidiary andreceives no compensation based upon the amount of premiums written inconnection with such insurance; and
(ii) accepts insurance placements only from nonaffiliated subproducers, andnot directly from insureds; and
(B) the controlled insurer, except for insurance business written through aresidual market facility established pursuant to Kansas statutes oradministrative regulations, accepts insurance business only from a controllingproducer, a producer controlled bythe controlled insurer, or a producer that is asubsidiary of the controlled insurer.
(b) A controlled insurer shall not accept business from a controllingproducerand a controlling producer shall not place business with acontrolled insurerunless there is a written contract between the controllingproducer and theinsurer specifying the responsibilities of each party, which contract has beenapproved by the board of directors of the insurer and contains the followingminimum provisions:
(1) The controlled insurer may terminate the contract for cause, uponwritten notice to the controlling producer. Thecontrolled insurer shall suspendthe authority of the controlling producer to writebusiness during the pendencyof any dispute regarding the cause for the termination;
(2) the controlling producer shall render accounts tothe controlled insurerdetailing all material transactions, including information necessary to supportall commissions, charges and other fees received by, or owing to, thecontrolling producer;
(3) the controlling producer shall remit all funds dueunder the terms ofthe contract to the controlled insurer on at least a monthly basis. The duedate shall be fixed so that premiums or installments thereof collected shall beremitted no later than 90 days after the effective date of any policy placedwith the controlled insurer under this contract;
(4) all funds collected for the controlled insurer's account shall be heldby the controlling producer in a fiduciary capacity, inone or more appropriatelyidentified bank accounts in banks that are members of the federal reservesystem, in accordance with the provisions of the insurance law as applicable.Notwithstanding the foregoing, funds of a controllingproducer not required to belicensed in this state shall be maintained in compliance with the requirementsof the controlling producer's state of domicile;
(5) the controlling producer shall maintain separatelyidentifiable records ofbusiness written for the controlled insurer;
(6) the contract shall not be assigned in whole or in part by thecontrolling producer;
(7) the controlled insurer shall provide the controllingproducer with itsunderwriting standards, rules and procedures, manuals setting forth the ratesto be charged, and the conditions for the acceptance or rejection of risks. The controlling producer shall adhere to the standards,rules, procedures, ratesand conditions. The standards, rules, procedures, rates and conditions shallbe the same as those applicable to comparable business placed with thecontrolled insurer by a producer other than thecontrolling producer;
(8) the rates and terms of the controlling producer'scommissions, charges orother fees and the purposes for those charges or fees. The rates of thecommissions, charges and other fees shall be no greater than those applicableto comparable business placed with the controlled insurer byproducers other thancontrolling producers. For purposes of this paragraphand paragraph (7) of thissubsection,examples of "comparable business" includes the same lines of insurance, samekinds of insurance, same kinds of risks, similar policy limits, and similarquality of business;
(9) if the contract provides that the controllingproducer, on insurancebusiness placed with the insurer, is to be compensated contingent upon theinsurer's profits on that business, then such compensation shall not bedetermined and paid until at least five years after the premiums on liabilityinsurance are earned and at least one year after the premiums are earned on anyother insurance. In no event shall the commission be paid until the adequacyof the controlled insurer's reserves on remaining claims has been independentlyverified pursuant to paragraph (1) of subsection (d);
(10) a limit on the controlling producer's writings inrelation to thecontrolled insurer's surplus and total writings. The insurer may establish adifferent limit for each line or subline of business. The controlled insurershall notify the controlling producer when the applicablelimit is approached andshall not accept business from the controlling producer ifthe limit is reached. The controlling producer shall not place business with thecontrolled insurer ifit has been notified by the controlled insurer that the limit has been reached;and
(11) the controlling producer may negotiate but shallnot bind reinsurance onbehalf of the controlled insurer on business the controllingproducer places withthe controlled insurer, except that the controllingproducer may bind faculativereinsurance contracts pursuant to obligatory faculative agreements if thecontract with the controlled insurer contains underwriting guidelinesincluding, for both reinsurance assumed and ceded, a list of reinsurers withwhich such automatic agreements are in effect, the coverages and amounts orpercentages that may be reinsured and commission schedules.
(c) Every controlled insurer shall have an audit committee of the board ofdirectors composed of independent directors. The audit committee shallannually meet the management, the insurer's independent certified publicaccountants, and an independent casualty actuary or other independent lossreserve specialist acceptable to the commissioner to review the adequacy of theinsurer's loss reserves.
(d) (1) In addition to any other required loss reserve certification, thecontrolled insurer shall annually, on April 1 of each year, file with thecommissioner an opinion of an independent casualty actuary or other independentloss reserve specialist acceptable to the commissioner, reporting loss ratiosfor each line of business written and attesting to the adequacy of lossreserves established for losses incurred and outstanding as of year-end,including incurred but not reported losses, on business placed by theproducer;and
(2) the controlled insurer shall annually report to the commissioner theamount of commissions paid to the producer, the percentagesuch amount representsof the net premiums written and comparable amounts and percentage paid tononcontrolling producers for placements of the same kindsof insurance.
History: L. 1992, ch. 14, § 4;L. 2005, ch. 163, § 5; July 1.