S 1149 Session 109 (1991-1992)
S 1149 General Bill, By Saleeby, Land, McConnell, M.F. Mullinax and T.H. Pope
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.
01/15/92 Senate Introduced and read first time SJ-160
01/15/92 Senate Referred to Committee on Banking and Insurance SJ-16
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.
Be it enacted by the General Assembly of the State of South Carolina:
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 corporation, a fraternal organization, a burial
association, another association, a partnership, a society, an order, an
individual, or an aggregation of individuals engaging or proposing or
attempting to engage as principals in an insurance or surety business,
including the exchanging of reciprocal or interinsurance contracts
between individuals, partnerships, and corporations.
(3)(a) `Managing General Agent', MGA, means a person who:
(i) 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;
(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:
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 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 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."
SECTION 2. This act takes effect July 1, 1992, and no insurer may
utilize the services of a managing general agency after December 31,
1992, unless the utilization is in compliance with this act.
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