S*1366 Session 109 (1991-1992)
S*1366(Rat #0372, Act #0332 of 1992) General Bill, By
Senate Banking and Insurance
A Bill to amend the Code of Laws of South Carolina, 1976, by adding Chapter 46
to Title 38 so as to provide for the Reinsurance Intermediary Act by setting
forth definitions, requirements for licensure, examinations, reinsurance
intermediary brokers, and reinsurance intermediary-managers, prohibitions,
penalties, liabilities, and authorization for regulations; to amend Section
38-61-20, relating to the approval of insurance policies, contracts, and
certificates by the Insurance Commissioner, so as to revise the exemption for
the approval requirement, and to repeal Section 38-77-930, relating to rules
by affiliated automobile insurers regarding risks.-amended title
03/04/92 Senate Introduced, read first time, placed on calendar
without reference SJ-15
03/25/92 Senate Amended SJ-14
03/25/92 Senate Read second time SJ-14
03/25/92 Senate Ordered to third reading with notice of
amendments SJ-15
03/26/92 Senate Read third time and sent to House SJ-21
03/31/92 House Introduced, read first time, placed on calendar
without reference HJ-43
04/15/92 House Read second time HJ-32
04/16/92 House Read third time and enrolled HJ-13
04/28/92 Ratified R 372
05/04/92 Signed By Governor
05/04/92 Effective date 05/04/92
05/04/92 Act No. 332
05/04/92 See act for exception to or explanation of
effective date
06/02/92 Copies available
(A332, R372, S1366)
AN ACT TO AMEND THE CODE OF LAWS OF SOUTH
CAROLINA, 1976, BY ADDING CHAPTER 46 TO TITLE 38
SO AS TO PROVIDE FOR THE REINSURANCE
INTERMEDIARY ACT BY SETTING FORTH DEFINITIONS,
REQUIREMENTS FOR LICENSURE, EXAMINATIONS,
REINSURANCE INTERMEDIARY-BROKERS, AND
REINSURANCE INTERMEDIARY-MANAGERS,
PROHIBITIONS, PENALTIES, LIABILITIES, AND
AUTHORIZATION FOR REGULATIONS; TO AMEND
SECTION 38-61-20, RELATING TO THE APPROVAL OF
INSURANCE POLICIES, CONTRACTS, AND CERTIFICATES
BY THE INSURANCE COMMISSIONER, SO AS TO REVISE
THE EXEMPTION FOR THE APPROVAL REQUIREMENT,
AND TO REPEAL SECTION 38-77-930, RELATING TO
RULES BY AFFILIATED AUTOMOBILE INSURERS
REGARDING RISKS.
Be it enacted by the General Assembly of the State of South
Carolina:
Reinsurance Intermediary Act
SECTION 1. The 1976 Code is amended by adding:
"CHAPTER 46
Reinsurance Intermediary Act
Section 38-46-10. This chapter may be cited as the
`Reinsurance Intermediary Act'.
Section 38-46-20. As used in this chapter:
(1) `Actuary' means a person who is a member in good
standing of the American Academy of Actuaries.
(2) `Controlling person' means a person, a firm, an
association, or a corporation who directly or indirectly has power
to direct or cause to be directed the management, control, or
activities of the reinsurance intermediary.
(3) `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 any kind of
insurance or surety business, including the exchanging of
reciprocal or interinsurance contracts between individuals,
partnerships, and corporations.
(4) `Licensed producer' means an agent, broker, or reinsurance
intermediary licensed pursuant to the applicable provision of the
insurance law.
(5) `Reinsurance intermediary' means a reinsurance
intermediary-broker or a reinsurance intermediary-manager
defined in this section.
(6) `Reinsurance intermediary-broker' means a person, other
than an officer or employee of the ceding insurer, who solicits,
negotiates, or places reinsurance cessions or retrocessions on
behalf of a ceding insurer without the authority or power to bind
reinsurance on behalf of the insurer.
(7) `Reinsurance intermediary-manager' means a person who
has authority to bind or manage all or part of the assumed
reinsurance business of a reinsurer, including the management of
a separate division, department, or underwriting office, and acts as
an agent for the reinsurer whether known as a reinsurance
intermediary-manager or other similar term. The following
persons are not reinsurance intermediary-managers with respect to
the reinsurer for the purposes of this chapter:
(a) an employee of the reinsurer;
(b) a United States reinsurance intermediary-manager of
the United States branch of an alien reinsurer;
(c) an underwriting reinsurance intermediary-manager
which, pursuant to contract, manages all the reinsurance
operations of the reinsurer, is under common control with the
reinsurer, is subject to the Insurance Holding Company
Regulatory Act, and whose compensation is not based on the
volume of premiums written.
(d) the reinsurance intermediary-manager of a group,
association, pool, or organization of insurers which engage in
joint underwriting or joint reinsurance and who are subject to
examination by the insurance commissioner of the state in which
the reinsurance intermediary-manager's principal business office
is located.
(8) `Reinsurer' means a person, a firm, an association, or a
corporation licensed in this State pursuant to the applicable
provisions of the insurance law as an insurer with the authority to
assume reinsurance.
(9) `To be in violation' means that the reinsurance
intermediary, insurer, or reinsurer for whom the reinsurance
intermediary was acting failed to comply substantially with this
chapter.
(10) `Qualified United States financial institution' means
an institution that:
(a) is organized or, for a United States office of a foreign
banking organization, licensed under the laws of the United States
or its states;
(b) is regulated, supervised, and examined by United
States federal or state authorities having regulatory authority over
banks and trust companies;
(c) has been determined by either the commissioner or the
Securities Valuation Office of the National Association of
Insurance Commissioners to meet the standards of financial
condition and standing considered necessary and appropriate to
regulate the quality of financial institutions whose letters of credit
are acceptable to the commissioner.
Section 38-46-30. (A) No person may act as a reinsurance
intermediary-broker in this State if he maintains an office directly
or as a member or an employee of a firm or an association or as an
officer, a director, or an employee of a corporation in:
(1) this State unless the reinsurance intermediary-broker
is a licensed producer in this State; or
(2) another state unless the reinsurance
intermediary-broker is a licensed producer in that state and is
licensed in this State as a reinsurance intermediary. The license
may be a nonresident license.
(B) No person may act as a reinsurance
intermediary-manager:
(1) for a reinsurer domiciled in this State, unless the
reinsurance intermediary-manager is a licensed producer in this
State;
(2) in this State if the reinsurance intermediary-manager
maintains an office directly or as a member or an employee of a
firm or an association or an officer, a director, or an employee of a
corporation in this State unless the reinsurance
intermediary-manager is a licensed producer in this State;
(3) in another state for a foreign insurer, unless the
reinsurance intermediary-manager is a licensed producer in that
state and is licensed in this State as a reinsurance intermediary.
The license may be a nonresident license.
(C) For the protection of the reinsurer, the commissioner shall
require a reinsurance intermediary-manager subject to subsection
(B) to file a fifty thousand dollar bond for each reinsurer
represented. The bond must be issued by an insurer acceptable to
the commissioner.
(D)(1) The commissioner may issue a reinsurance
intermediary license to a person who has:
(a) demonstrated compliance with the requirements of
this chapter;
(b) completed satisfactorily an application for a license on
forms prepared by the commissioner;
(c) paid a licensing fee of one hundred dollars in
connection with the issuance or annual renewal of the license.
(2) If the applicant for a reinsurance intermediary license
is a nonresident, the applicant, as a condition precedent to
receiving or holding a license, shall designate a resident of this
State upon whom notices or orders of the commissioner or process
affecting the nonresident reinsurance intermediary may be served.
The licensee shall notify the commissioner in writing within thirty
days of every change in its designated agent for service of
process, and the change does not become effective until
acknowledged by the commissioner.
(E) The commissioner may refuse to issue a reinsurance
intermediary license if, in his judgment, the applicant, a person
named on the application, or a member, a principal, an officer, or
a director of the applicant is not trustworthy or a controlling
person of the applicant is not trustworthy to act as a reinsurance
intermediary or if one or more of the foregoing has given cause
for revocation or suspension of the license or has failed to comply
with a prerequisite for the issuance of the license. Upon written
request the commissioner shall furnish a summary of the basis for
refusal to issue a license. No reinsurance intermediary license
may be refused except on reasonable notice and opportunity to be
heardafforded the applicant. An applicant whose application has
been denied may appeal as provided in Section 38-3-210.
(F) Licensed attorneys of this State when acting in their
professional capacity are exempt from this section.
Section 38-46-40. Transactions between a reinsurance
intermediary-broker and the insurer it represents in that capacity
only may be entered into pursuant to a written contract specifying
the responsibilities of each party. The contract, at a minimum,
must provide that:
(1) The insurer may terminate the reinsurance
intermediary-broker's authority at any time.
(2) The reinsurance intermediary-broker shall render accounts
to the insurer accurately detailing all material transactions,
including information necessary to support all commissions,
charges, and other fees received by or owing to the reinsurance
intermediary-broker, and remit all funds due to the insurer within
thirty days of receipt.
(3) Funds collected for the insurer's account must be held by
the reinsurance intermediary-broker in a fiduciary capacity in a
bank which is a qualified United States financial institution.
(4) The reinsurance intermediary-broker shall comply with
Section 38-46-50.
(5) The reinsurance intermediary-broker shall comply with the
written standards established by the insurer for the cession or
retrocession of all risks.
(6) The reinsurance intermediary-broker shall disclose to the
insurer a relationship with a reinsurer to which business will be
ceded or retroceded.
Section 38-46-50. (A) For at least ten years after expiration of
each contract of reinsurance transacted by the reinsurance
intermediary-broker, he shall keep a complete record for each
transaction showing:
(1) the type of contract, limits, underwriting restrictions,
classes or risks, and territory;
(2) the period of coverage, including effective and
expiration dates, cancellation provisions, and notice required for
cancellation;
(3) reporting and settlement requirements of balances;
(4) the rate used to compute the reinsurance premium;
(5) the names and addresses of assuming reinsurers;
(6) the rates of all reinsurance commissions, including the
commissions on retrocessions handled by the reinsurance
intermediary-broker;
(7) related correspondence and memoranda;
(8) proof of placement;
(9) the details regarding retrocessions handled by the
reinsurance intermediary-broker, including the identity of
retrocessionaries and percentage of each contract assumed or
ceded;
(10) financial records, including, but not limited to,
premium and loss accounts;
(11) when the reinsurance intermediary-broker procures a
reinsurance contract on behalf of an insurer:
(a) directly from an assuming reinsurer, written evidence
that the assuming reinsurer has agreed to assume the risk; or
(b) if placed through a representative of the assuming
reinsurer other than an employee, written evidence that the
reinsurer has delegated binding authority to the representative.
(B) The insurer must have access and the right to copy and
audit all accounts and records maintained by the reinsurance
intermediary-broker related to its business in a form usable by the
insurer.
Section 38-46-60. (A) An insurer may not engage the services
of a person, a firm, an association, or a corporation to act as a
reinsurance intermediary-broker on its behalf unless the person is
licensed as required by Section 38-46-30.
(B) An insurer may not employ an individual who is employed
by a reinsurance intermediary-broker with which it transacts
business unless the reinsurance intermediary-broker is under
common control with the insurer and subject to the Insurance
Holding Company Regulatory Act.
(C) The insurer annually shall file with the commissioner not
later than March first a copy of the statements of the financial
condition of each reinsurance intermediary-broker which the
insurer has engaged. The statements must be prepared by an
independent certified accountant in a form acceptable to the
commissioner.
Section 38-46-70. Transactions between a reinsurance
intermediary-manager and the reinsurer it represents in that
capacity only may be entered into pursuant to a written contract
specifying the responsibilities of each party, which must be
approved by the reinsurer's board of directors. No contract by
which a reinsurer assumes or cedes business through a reinsurance
intermediary-manager may be entered into unless the insurer has
notified the commissioner in writing at least thirty days in
advance of its intention to enter into the contract, has furnished a
true copy of the contract to the commissioner, and the
commissioner has not disapproved it within the thirty days. The
contract, at a minimum, must provide:
(1) The reinsurer may terminate the contract for cause upon
written notice to the reinsurance-intermediary manager. The
reinsurer immediately may suspend the authority of the
reinsurance intermediary-manager to assume or cede business
during the pendency of a dispute regarding the cause for
termination.
(2) The reinsurance intermediary-manager shall render
accounts to the reinsurer accurately detailing all material
transactions, including information necessary to support all
commissions, charges, and other fees received by or owing to the
reinsurance intermediary-manager and remit all funds due under
the contract to the reinsurer within thirty days.
(3) All funds collected for the reinsurer's account must be held
by the reinsurance intermediary-manager in a fiduciary capacity in
a bank which is a qualified United States financial institution.
The reinsurance intermediary-manager may retain no more than
ninety days estimated claims payments and allocated loss
adjustment expenses. The reinsurance intermediary-manager
shall maintain a separate bank account for each reinsurer that it
represents.
(4) For at least ten years after expiration of each contract of
reinsurance transacted by the reinsurance intermediary-manager,
he shall keep a complete record for each transaction showing:
(a) the type of contract, limits, underwriting restrictions,
classes or risks, and territory;
(b) the period of coverage, including effective and
expiration dates, cancellation provisions, notice required of
cancellation, and disposition of outstanding reserves on covered
risks;
(c) reporting and settlement requirements of balances;
(d) the rate used to compute the reinsurance premium;
(e) the names and addresses of reinsurers;
(f) the rates of all reinsurance commissions, including the
commissions on retrocessions handled by the reinsurance
intermediary-manager;
(g) related correspondence and memoranda;
(h) proof of placement;
(i) the details regarding retrocessions handled by the
reinsurance intermediary-manager, as permitted by Section
38-46-90(D), including the identity of retrocessionaires and
percentage of each contract assumed or ceded;
(j) financial records, including, but not limited to, premium
and loss accounts;
(k) when the reinsurance intermediary-manager places a
reinsurance contract on behalf of a ceding insurer:
(i) directly from an assuming reinsurer, written evidence
that the assuming reinsurer has agreed to assume the risk; or
(ii) if placed through a representative of the assuming
reinsurer other than an employee, written evidence that the
reinsurer has delegated binding authority to the representative.
(5) The reinsurer must have access and the right to copy all
accounts and records maintained by the reinsurance
intermediary-manager related to its business in a form usable by
the reinsurer.
(6) The contract must not be assigned in whole or in part by
the reinsurance intermediary-manager.
(7) The reinsurance intermediary-manager shall comply with
the written underwriting and rating standards established by the
insurer for the acceptance, rejection, or cession of all risks.
(8) The rates, terms, and purposes of commissions, charges,
and other fees which the reinsurance intermediary-manager may
levy against the reinsurer must be set forth.
(9) If the contract permits the reinsurance
intermediary-manager to settle claims on behalf of the
reinsurer:
(a) All claims must be reported to the reinsurer in a timely
manner.
(b) A copy of the claim file must be sent to the reinsurer at
its request or as soon as it becomes known that the claim:
(i) has the potential to exceed fifty thousand dollars or the
limit set by the reinsurer, whichever is less;
(ii) involves a coverage dispute;
(iii) may exceed the reinsurance intermediary-manager's
claims settlement authority;
(iv) is open for more than six months; or
(v) is closed by payment of fifty thousand dollars or an
amount set by the reinsurer, whichever is less;
(c) All claim files must be the joint property of the
reinsurer and reinsurance intermediary-manager. However, upon
an order of liquidation of the reinsurer the files become the sole
property of the reinsurer or its estate. The reinsurance
intermediary-manager must have reasonable access to and the
right to copy the files on a timely basis.
(d) Settlement authority granted to the reinsurance
intermediary-manager may be terminated for cause upon the
reinsurer's written notice to the reinsurance intermediary-manager
or upon the termination of the contract. The reinsurer may
suspend the settlement authority during the pendency of the
dispute regarding the cause of termination.
(10) If the contract provides for a sharing of interim profits by
the reinsurance intermediary-manager, interim profits must not be
paid until one year after the end of each underwriting period for
property business and five years after the end of each
underwriting period for casualty business, or a later period set by
the commissioner for specified lines of insurance, and not until
the adequacy of reserves on remaining claims has been verified
pursuant to Section 38-46-90(C).
(11) The reinsurance intermediary-manager annually shall
provide the reinsurer with a statement of its financial condition
prepared by an independent certified accountant.
(12) The reinsurer at least semi-annually shall conduct an
on-site review of the underwriting and claims processing
operations of the reinsurance intermediary-manager.
(13) The reinsurance intermediary-manager shall disclose to
the reinsurer relationships it has with an insurer before ceding or
assuming business with the insurer pursuant to this contract.
(14) Within the scope of its actual or apparent authority the
acts of the reinsurance intermediary-manager are considered to be
the acts of the reinsurer on whose behalf it is acting.
Section 38-46-80. The reinsurance intermediary-manager
may not:
(1) cede retrocessions on behalf of the reinsurer, except the
reinsurance intermediary-manager may cede facultative
retrocessions pursuant to obligatory facultative agreements if the
contract with the reinsurer contains reinsurance underwriting
guidelines for the retrocessions. The guidelines must include a
list of reinsurers with which the automatic agreements are in
effect and for each reinsurer, the coverages and amounts or
percentages that may be reinsured and commission schedules;
(2) commit the reinsurer to participate in reinsurance
syndicates;
(3) appoint a licensed producer without assuring that the
licensed producer is licensed lawfully to transact the type of
reinsurance for which he is appointed;
(4) without prior approval of the reinsurer, pay or commit the
reinsurer to pay a claim, net of retrocessions, that exceeds fifty
thousand dollars or one percent of the reinsurer's policyholder's
surplus as of December thirty-first of the last completed calendar
year, whichever is less;
(5) collect payment from a retrocessionaire or commit the
reinsurer to a claim settlement with a retrocessionaire, without
prior approval of the reinsurer. If prior approval is given, a report
must be forwarded to the reinsurer within ten days;
(6) jointly employ an individual who is employed by the
reinsurer unless the reinsurance intermediary-manager is under
common control with the reinsurer subject to the Insurance
Holding Company Regulatory Act;
(7) appoint a reinsurance intermediary-submanager.
Section 38-46-90. (A) A reinsurer may not engage the
services of a person, a firm, an association, or a corporation to act
as a reinsurance intermediary-manager on its behalf unless the
person is licensed as required by Section 38-46-30.
(B) The reinsurer annually shall file with the commissioner
not later than March first a copy of statements of the financial
condition of each reinsurance intermediary-manager, which the
reinsurer has engaged, prepared by an independent certified
accountant in a form acceptable to the commissioner.
(C) If a reinsurance intermediary-manager establishes loss
reserves, the reinsurer 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
reinsurance intermediary-manager. The opinion must be filed not
later than March first. This opinion is in addition to other
required loss reserve certification.
(D) Binding authority for all retrocessional contracts or
participation in reinsurance syndicates rests with an officer of the
reinsurer who must not be affiliated with the reinsurance
intermediary-manager.
(E) Within thirty days of termination of a contract with a
reinsurance intermediary-manager, the reinsurer shall provide
written notification of termination to the commissioner.
(F) A reinsurer may not appoint to its board of directors an
officer, a director, an employee, a controlling shareholder, or a
subproducer of its reinsurance intermediary-manager. This
subsection does not apply to relationships governed by the
Insurance Holding Company Regulatory Act or, if applicable, the
Broker Controlled Insurer Act.
Section 38-46-100. (A) A reinsurance intermediary is
subject to examination by the commissioner. The commissioner
must have access to all books, bank accounts, and records of the
reinsurance intermediary in a form usable to the
commissioner.
(B) A reinsurance intermediary-manager may be examined as
if he were the reinsurer.
Section 38-46-110. (A) A reinsurance intermediary,
insurer, or reinsurer found by the commissioner after a hearing
conducted in accordance with Regulation 69-31 to be in violation
of this chapter:
(1) for each separate violation, shall pay a penalty of not
more than fifteen thousand dollars and thirty thousand dollars if
the violation is wilful;
(2) is subject to revocation or suspension of its license;
(3) for a violation committed by the reinsurance
intermediary, make restitution to the insurer, reinsurer,
rehabilitator, or liquidator of the insurer or reinsurer for the net
losses incurred by the insurer or reinsurer attributable to the
violation.
(B) The decision, determination, or order of the commissioner
pursuant to subsection (A) is subject to judicial review pursuant to
Section 38-3-210.
(C) This section does not affect the right of the commissioner
to impose other penalties provided by Title 38.
(D) This chapter does not limit or restrict the rights of
policyholders, claimants, creditors, or other third parties or confer
rights to those persons.
Section 38-46-120. The commissioner may promulgate
reasonable regulations for the implementation and administration
of this chapter."
Exemption for the approval of insurance policies, contracts,
and certificates
SECTION 2. Section 38-61-20(C) of the 1976 Code is amended
to read:
"(C) The commissioner may exempt from the
requirements of subsection (A) as long as he considers proper any
type of insurance policy, contract, or certificate to which in his
opinion subsection (A) practically must not be applied, or the
filing and approval of which, in his opinion, is not necessary for
the protection of the public. However, every insurer at least
annually shall list the types and form numbers of all policies it
issues or sells in this State which the commissioner has exempted
from being filed and approved, and the president or chief
executive officer of the insurer shall certify that all of these
policies comply fully with the laws of this State. If a policy,
contract, or certificate is certified to be in compliance with the
laws of this State and the commissioner finds it violates a law of
this State, he may disqualify that insurer from certifying policies,
contracts, or certificates allowed under this subsection."
Repeal
SECTION 3. Section 38-77-930 of the 1976 Code is
repealed.
Time effective
SECTION 4. This act takes effect upon approval by the
Governor. However, no insurer or reinsurer may utilize the
services of a reinsurance intermediary six months or more after
the effective date unless utilization is in compliance with Chapter
46, Title 38 of the 1976 Code.
Approved the 4th day of May, 1992. |