S*1365 Session 109 (1991-1992)
S*1365(Rat #0416, Act #0363 of 1992) General Bill, By
Senate Banking and Insurance
A Bill to amend the Code of Laws of South Carolina, 1976, by adding Chapter 44
to Title 38 so as to provide for the Managing General Agents Act.
03/04/92 Senate Introduced, read first time, placed on calendar
without reference
03/05/92 Senate Amended SJ-25
03/05/92 Senate Read second time SJ-25
03/05/92 Senate Unanimous consent for third reading on next
legislative day SJ-26
03/06/92 Senate Read third time and sent to House SJ-2
03/09/92 House Introduced and read first time HJ-6
03/09/92 House Referred to Committee on Labor, Commerce and
Industry HJ-7
04/15/92 House Committee report: Favorable Labor, Commerce and
Industry HJ-8
04/29/92 House Debate adjourned until Thursday, April 30, 1992 HJ-279
05/05/92 House Read second time HJ-26
05/06/92 House Read third time and enrolled HJ-9
05/13/92 Ratified R 416
05/15/92 Signed By Governor
05/15/92 Effective date 12/31/92
05/15/92 Act No. 363
05/15/92 See act for exception to or explanation of
effective date
06/22/92 Copies available
(A363, R416, S1365)
AN ACT TO AMEND THE CODE OF LAWS OF SOUTH
CAROLINA, 1976, BY ADDING CHAPTER 44 TO TITLE 38
SO AS TO PROVIDE FOR THE MANAGING GENERAL
AGENTS ACT.
Be it enacted by the General Assembly of the State of South
Carolina:
Managing General Agents Act
SECTION 1. Title 38 of the 1976 Code is amended by
adding:
"CHAPTER 44
Managing General Agents Act
Section 38-44-10. This chapter may be cited as the `Managing
General Agents Act'.
Section 38-44-20. 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 a domestic insurer as defined in Section
38-1-20(17).
(3)(a) `Managing general agent', MGA, means a person
who:
(i) manages all or part of the insurance business of an
insurer, including the management of a separate division,
department, or underwriting office;
(ii) acts as an agent for the insurer whether known as a
MGA, a manager, or another similar term;
(iii) 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 five percent of the policyholder surplus as reported in
the last annual statement of the insurer in one quarter or year with
one or both of the following activities related to the business
produced:
a. adjusts or pays claims in excess of five thousand
dollars;
b. negotiates ceding reinsurance contracts on behalf of
the insurer.
(b) Notwithstanding subitem (a), the following are not
considered as MGA's for the purposes of this chapter:
(i) an employee of the insurer;
(ii) a United States manager of the United States branch
of an alien insurer;
(iii) 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, and is subject to the
Insurance Holding Company Regulatory Act and whose
compensation is not based on the volume of premiums
written;
(iv) the attorney-in-fact authorized by and acting for the
subscribers of a reciprocal insurer or interinsurance exchange
under powers of attorney;
(4) `Underwrite' means the authority to accept or reject
risk on behalf of the insurer.
Section 38-44-30. (A) No person may act in the capacity of a
MGA with respect to risks located in this State for an insurer
licensed in South Carolina unless the person is licensed as an
agent for that insurer in this State.
(B) No person may act in the capacity of a MGA representing
an insurer domiciled in this State with respect to risks located
outside South Carolina unless the person is licensed properly as
an agent or broker in that state and licensed as an insurance agent
in this State for that insurer. The license may be a nonresident
license.
(C) For the protection of the insurer, the commissioner shall
require the MGA to obtain a bond of fifty thousand dollars for
each insurer represented.
Section 38-44-40. No person acting in the capacity of a MGA
may place business with an insurer unless there is in force a
written contract between the parties which sets forth the
responsibilities of each party with both parties sharing
responsibility for a particular function, specifies the division of
responsibilities, and 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 a
dispute regarding the cause for termination. If the contract is
terminated or the MGA's underwriting authority is suspended,
notification must be given by the insurer within thirty days of the
action to agents or brokers who have placed business with the
MGA within the last twelve months.
(2) The MGA shall render accounts to the insurer detailing all
transactions and remit all funds due under the contract to the
insurer within thirty days.
(3) All funds collected for the account of an insurer must be
held by the MGA in a fiduciary capacity in a bank which is a
member of the Federal Reserve System. This account must be
used for all payments on behalf of the insurer. The MGA may
retain no more than ninety days estimated claims payments and
allocated loss adjustment expenses.
(4) Separate records of business written by the MGA must be
maintained. The insurer must have access to and the right to copy
all accounts and records related to its business in a form usable by
the insurer. The commissioner must have access to all books,
bank accounts, and records of the MGA in a form usable to the
commissioner. The records must be retained according to Section
38-43-250.
(5) The contract must not be assigned in whole or part by the
MGA.
(6) Appropriate underwriting guidelines must be included
such as:
(a) maximum annual premium volume;
(b) basis of the rates to be charged;
(c) types of risks which may be written;
(d) maximum limits of liability;
(e) applicable exclusions;
(f) territorial limitations;
(g) policy cancellation provisions;
(h) maximum policy period.
(7) The insurer must have the right to cancel or not renew a
policy of insurance subject to the applicable laws and
regulations.
(8) 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 must be sent to the insurer at
its request or as soon as it becomes known that the claim:
(i) has the potential to exceed five thousand dollars or
exceeds the limit set by the company, whichever is less;
(ii) involves a coverage dispute;
(iii) may exceed the MGA's claims settlement
authority;
(iv) is open for more than six months; or
(v) is closed by payment of five thousand dollars or an
amount set by the company, whichever is less.
(c) All claim files are the joint property of the insurer and
the MGA. However, upon an order of liquidation of the insurer
the files become the sole property of the insurer or its estate. The
MGA must have reasonable access to and the right to copy the
files on a timely basis.
(d) 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 a dispute
regarding the cause for termination. If a contract is terminated or
the MGA's settlement authority is suspended, notification must be
given by the insurer within thirty days of the action to agents or
brokers who have placed business with the MGA within the last
twelve months.
(9) Where electronic claims files are in existence, the contract
must address the timely transmission of the data.
(10) 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 another manner, interim profits
must not be paid to the MGA until one year after they are earned
for property insurance business and five years after they are
earned on casualty business and not until the profits have been
verified pursuant to Section 38-44-50.
(11) The MGA may not:
(a) bind assumed reinsurance or retrocessions on behalf
of the insurer, except the MGA may bind facultative reinsurance
contracts pursuant to obligatory facultative agreements if the
contract with the insurer contains reinsurance underwriting
guidelines, including, for reinsurance assumed and ceded, a list of
reinsurers with which the 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 an agent without assuring that the agent is
licensed lawfully to transact the type of insurance for which he is
appointed;
(d) without prior approval of the insurer, pay or commit
the insurer to pay a claim over five thousand dollars, net of
reinsurance, or one percent of the insurer's policyholder's surplus
as of December 31 of the last completed calendar year, whichever
is less;
(e) collect payment from a reinsurer or commit the
insurer to a claim settlement with a reinsurer, without prior
approval of the insurer. If prior approval is given, a report must
be forwarded promptly to the insurer;
(f) permit its agent to serve on the insurer's board of
directors;
(g) jointly employ an individual who is employed with
the insurer;
(h) appoint a sub-MGA.
Section 38-44-50. (A) The insurer shall file annually with the
commissioner not later than March 1 an annual independent
financial examination of each MGA with which it has done
business, prepared by a certified public accountant in a form
acceptable to the commissioner.
(B) If a MGA establishes loss reserves, the insurer annually
shall 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. The opinion must be filed not
later than March 1. This is in addition to other required loss
reserve certification.
(C) The insurer at least semi-annually by July 31 and
December 31 shall conduct an on-site review of the underwriting
and claims processing operations of the MGA.
(D) Binding authority for all assumed reinsurance contracts or
participation in insurance or reinsurance syndicates rests with an
officer of the insurer who must not be affiliated with the
MGA.
(E) Within thirty days of entering into or termination of a
contract with a MGA the insurer shall provide written notification
of the appointment or termination to the commissioner. Notices
of appointment of a MGA must 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 other information the commissioner may
request. If the contract is terminated, notification must be given
by the insurer within thirty days of the action to agents or brokers
who have placed business with the MGA within the last twelve
months.
(F) An insurer shall review its books and records each quarter
to determine if an agent, as defined by Section 38-44-20(3), has
become, by operation of that section, a MGA. If the insurer
determines that an agent has become a MGA, the insurer promptly
shall notify the agent and the commissioner of the determination,
and the insurer and agent shall comply fully with this chapter
within thirty days.
(G) An insurer may not appoint to its board of directors an
officer, a director, an employee, an agent, or a broker or a
controlling shareholder of its MGA's. This subsection does not
apply to relationships governed by the Insurance Holding
Company Regulatory Act or, if applicable, the Broker Controlled
Insurer Act.
Section 38-44-60. The acts of the MGA are considered to be
the acts of the insurer on whose behalf it is acting. A MGA may
be examined as if it were the insurer.
Section 38-44-70. (A) If the commissioner finds after a
hearing conducted in accordance with Insurance Department
Regulation 69-31 that a person has violated this chapter, the
commissioner may order:
(1) for each separate violation, a penalty as provided in
Section 38-2-10;
(2) revocation or suspension of the agent's license of the
MGA;
(3) the MGA to reimburse the insurer, the rehabilitator, or
liquidator of the insurer for 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) is subject to judicial review pursuant to
Section 38-3-210 and the Administrative Procedures Act.
(C) Nothing contained in this section affects the right of the
commissioner to impose other penalties in Title 38.
(D) Nothing contained in this chapter limits or restricts the
rights of policyholders, claimants, and auditors.
Section 38-44-80. The commissioner may promulgate
reasonable regulations for the implementation and administration
of this chapter."
Time effective
SECTION 2. This act takes effect December 31, 1992. No
insurer may utilize the services of a managing general agency
after the effective date unless the utilization is in compliance with
this act.
Approved the 15th day of May, 1992. |