382.405. Degree of control required, provisions applicable, exemptions--contract between producer and insurer, requirements--insurer to have audit committee, members, purpose--loss ratios, report to d
Degree of control required, provisions applicable,exemptions--contract between producer and insurer,requirements--insurer to have audit committee, members,purpose--loss ratios, report to director, contents.
382.405. 1. (1) The provisions of this section shall apply if inany calendar year the aggregate amount of gross written premium on businessplaced with a controlled insurer by controlling producer is equal to orgreater than five percent of the admitted assets of the controlled insurer,as reported in the controlled insurer's quarterly statement filed as ofSeptember thirtieth of the prior year.
(2) Notwithstanding the provisions of subdivision (1) of thissubsection, the provisions of this section shall not apply if:
(a) The controlling producer:
a. Places insurance only with the controlled insurer, or only withthe controlled insurer and a number of members of the controlled insurer'sholding company system, or the controlled insurer's parent, affiliate orsubsidiary and receives no compensation based upon the amount of premiumswritten in connection with such insurance; and
b. Accepts insurance placements only from nonaffiliated subproducers,and not directly from insureds; and
(b) The controlled insurer, except for insurance business writtenthrough a residual market facility such as the joint underwritingassociation prescribed by section 303.200, RSMo, accepts insurance businessonly from a controlling producer, a producer controlled by the controlledinsurer, or a producer that is a subsidiary of the controlled insurer.
2. A controlled insurer shall not accept business from a controllingproducer and a controlling producer shall not place business with acontrolled insurer unless there is a written contract between thecontrolling producer and the insurer specifying the responsibilities ofeach party, which contract has been approved by the board of directors ofthe insurer and contains the following minimum provisions:
(1) The controlled insurer may terminate the contract for cause, uponwritten notice to the controlling producer. The controlled insurer shallsuspend the authority of the controlling producer to write business duringthe pendency of any dispute regarding the cause for the termination;
(2) The controlling producer shall render accounts to the controlledinsurer detailing all material transactions, including informationnecessary to support all commissions, charges and other fees received by,or owing to, the controlling producer;
(3) The controlling producer shall remit all funds due under theterms of the contract to the controlled insurer on at least a monthlybasis. The due date shall be fixed so that premiums or installmentsthereof collected shall be remitted no later than ninety days after theeffective date of any policy placed with the controlled insurer under thecontract;
(4) All funds collected for the controlled insurer's account shall beheld by the controlling producer in a fiduciary capacity, in one or moreappropriately identified bank accounts in banks that are members of theFederal Reserve System, in accordance with the provisions of applicableinsurance law; however, funds of a controlling producer not required to belicensed in this state shall be maintained in compliance with therequirements of the controlling producer's domiciliary jurisdiction;
(5) The controlling producer shall maintain separately identifiablerecords of business 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 controlling producerwith its underwriting standards, rules and procedures, manuals settingforth the rates to be charged, and the conditions for the acceptance orrejection of risks. The controlling producer shall adhere to thestandards, rules, procedures, rates and conditions. The standards, rules,procedures, rates and conditions shall be the same as those applicable tocomparable business placed with the controlled insurer by a producer otherthan the controlling producer;
(8) The rates and terms of the controlling producer's commissions,charges or other fees and the purposes for those charges or fees. Therates of the commissions, charges and other fees shall be no greater thanthose applicable to comparable business placed with the controlled insurerby producers other than controlling producers. For purposes of thissubdivision and subdivision (7) of this subsection, examples of comparablebusiness includes the same lines of insurance, same kinds of insurance,same kinds of risks, similar policy limits, and similar quality ofbusiness;
(9) If the contract provides that the controlling producer, oninsurance business placed with the insurer, is to be compensated contingentupon the insurer's profits on that business, then such compensation shallnot be determined and paid until at least five years after the premiums onliability insurance are earned and at least one year after the premiums areearned on any other insurance. In no event shall the commissions be paiduntil the adequacy of the controlled insurer's reserves on remaining claimshas been independently verified pursuant to subsection 1 of this section;
(10) A limit on the controlling producer's writings in relation tothe controlled insurer's surplus and total writings. The insurer mayestablish a different limit for each line or subline of business. Thecontrolled insurer shall notify the controlling producer when theapplicable limit is approached and shall not accept business from thecontrolling producer if the limit is reached. The controlling producershall not place business with the controlled insurer if it has beennotified by the controlled insurer that the limit has been reached; and
(11) The controlling producer may negotiate but shall not bindreinsurance on behalf of the controlled insurer, except that thecontrolling producer may bind facultative reinsurance contracts pursuant toobligatory facultative agreements if the contract with the controlledinsurer contains underwriting guidelines including, but both reinsuranceassumed and ceded, a list of reinsurers with which such automaticagreements are in effect, the coverages and amounts or percentages that maybe reinsured and commission schedules.
3. Every controlled insurer shall have an audit committee of theboard of directors composed of independent directors. The audit committeeshall annually meet with management, the insurer's independent certifiedpublic accountants, and an independent casualty actuary or otherindependent loss reserve specialist acceptable to the director to reviewthe adequacy of the insurer's loss reserves.
4. (1) In addition to any other required loss reserve certification,the controlled insurer shall annually, on April first of each year, filewith the director an opinion of an independent casualty actuary, or suchother independent loss reserve specialist acceptable to the director,reporting loss ratios for each line of business written and attesting tothe adequacy of loss reserves established for losses incurred andoutstanding as of year-end, including incurred but not reported, onbusiness placed by the producer; and
(2) The controlled insurer shall annually report to the director theamount of commissions paid to the producer, the percentage such amountrepresents of the net premiums written and comparable amounts andpercentage paid to noncontrolling producers for placements of the samekinds of insurance.
(L. 1992 H.B. 1574 § 9, A.L. 2009 H.B. 577)