H 4165 Session 109 (1991-1992)
H 4165 General Bill, By J.J. Bailey, R.S. Corning, J.T. McElveen, Quinn and
Scott
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, brokers, and
managers, prohibitions, penalties, liabilities, and authorization for
regulations.
01/15/92 House Introduced and read first time HJ-35
01/15/92 House Referred to Committee on Labor, Commerce and
Industry HJ-35
02/26/92 House Committee report: Favorable with amendment Labor,
Commerce and Industry HJ-16
03/03/92 House Amended HJ-24
03/03/92 House Debate adjourned until Wednesday, March 4, 1992 HJ-33
03/04/92 House Read second time HJ-37
03/05/92 House Read third time and sent to Senate HJ-13
03/10/92 Senate Introduced and read first time SJ-6
03/10/92 Senate Referred to Committee on Banking and Insurance
AMENDED
March 4, 1992
H. 4165
Introduced by REPS. J. Bailey, Corning, McElveen, Quinn and Scott
S. Printed 3/4/92--H.
Read the first time January 15, 1992.
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, BROKERS, AND MANAGERS, PROHIBITIONS,
PENALTIES, LIABILITIES, AND AUTHORIZATION FOR
REGULATIONS.
Amend Title To Conform
Be it enacted by the General Assembly of the State of South Carolina:
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, reinsurance
intermediary-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, 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 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 heard afforded 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(A).
(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
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).
(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."
SECTION 2. This act takes effect six months after approval by the
Governor. No insurer or reinsurer may utilize the services of a
reinsurance intermediary after the effective date unless utilization is in
compliance with Chapter 46, Title 38 of the 1976 Code.
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