S 1185 Session 109 (1991-1992)
S 1185 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 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.
01/16/92 Senate Introduced and read first time SJ-14
01/16/92 Senate Referred to Committee on Banking and Insurance SJ-1
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.
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, 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' or `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' or `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 manager or other similar
term. The following persons are not managers with respect to the
reinsurer for the purposes of this chapter:
(a) an employee of the reinsurer;
(b) a United States manager of the United States branch of an
alien reinsurer;
(c) an underwriting 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 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 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 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 broker is a licensed producer in this
State; or
(2) another state unless the 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 manager:
(1) for a reinsurer domiciled in this State, unless the manager
is a licensed producer in this State;
(2) in this State if the 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
manager is a licensed producer in this State;
(3) in another state for a foreign insurer, the 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 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 complied with the requirements of this
chapter.
(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 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 broker's authority at any time.
(2) The 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 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
broker in a fiduciary capacity in a bank which is a qualified United
States financial institution.
(4) The broker shall comply with Section 38-46-50.
(5) The broker shall comply with the written standards established
by the insurer for the cession or retrocession of all risks.
(6) The 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 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 broker;
(7) related correspondence and memoranda;
(8) proof of placement;
(9) the details regarding retrocessions handled by the 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 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 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 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 broker with which it transacts business unless the 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 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 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 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 manager. The reinsurer immediately may suspend
the authority of the manager to assume or cede business during the
pendency of a dispute regarding the cause for termination.
(2) The 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 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 manager in a fiduciary capacity in a bank which is a qualified United
States financial institution. The manager may retain no more than ninety
days estimated claims payments and allocated loss adjustment expenses.
The 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 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 manager;
(g) related correspondence and memoranda;
(h) proof of placement;
(i) the details regarding retrocessions handled by the 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 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 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
manager.
(7) The 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 manager may levy against the reinsurer must be set
forth.
(9) If the contract permits the 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 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
manager. However, upon an order of liquidation of the reinsurer the
files become the sole property of the reinsurer or its estate. The manager
must have reasonable access to and the right to copy the files on a timely
basis.
(d) Settlement authority granted to the manager may be
terminated for cause upon the reinsurer's written notice to the 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
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 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
manager.
(13) The 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 manager are considered to be the acts of the reinsurer on whose
behalf it is acting.
Section 38-46-80. The manager may not:
(1) cede retrocessions on behalf of the reinsurer, except the
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 manager is under common control with the reinsurer subject
to the Insurance Holding Company Regulatory Act;
(7) appoint a 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 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 manager which the reinsurer has engaged prepared by an
independent certified accountant in a form acceptable to the
commissioner.
(C) If a 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 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 manager.
(E) Within thirty days of termination of a contract with a 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 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 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 upon approval by the Governor.
However, no insurer or reinsurer may utilize the services of a
reinsurance intermediary on and after six months after the effective date
unless utilization is in compliance with Chapter 46, Title 38 of the 1976
Code.
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