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Bill Number: 1095 Ratification Number: 645 Act Number 562 Introducing Body: Senate Subject: Title insurance regulated
(A562, R645, S1095)
AN ACT TO AMEND ARTICLE 11, CHAPTER 75, TITLE 38, CODE OF LAWS OF SOUTH CAROLINA, 1976, RELATING TO TITLE INSURANCE, BY ADDING SECTIONS 38-75-905 AND 38-75-920 THROUGH 38-75-1000 SO AS TO REGULATE MORE STRINGENTLY THE TITLE INSURANCE BUSINESS IN THIS STATE.
Be it enacted by the General Assembly of the State of South Carolina:
Title insurance regulated
SECTION 1. Article 11, Chapter 75, Title 38 of the 1976 Code is amended by adding:
"Section 38-75-905. As used in this article, unless the context otherwise requires:
(1) 'Associate' means any one of the following:
(a) a business organized for profit in which a producer of title business is a director, officer, partner, employee, or owner of one percent or more of the equity capital thereof;
(b) an employee of a producer of title business;
(c) a franchisor or franchisee of a producer of title business;
(d) a spouse, parent, or child of a producer of title business;
(e) a person, other than an individual, that controls, is controlled by, or is under common control with, a producer of title business;
(f) a person with whom a producer of title business or any associate of such producer has any agreement, arrangement, or understanding or pursues any course of conduct, the purpose or substantial effect of which is to evade the provisions of this article.
(2) 'Financial interest' means any interest, legal or beneficial, that entitles the holder directly or indirectly to one percent or more of the net profits or net worth of the entity in which the interest is held.
(3) 'Producer of title business' or 'producer' means any person, including any officer, director, or owner of five percent or more of the equity or capital of any person engaged in this State in the trade, business, occupation, or profession of any one of the following:
(a) buying or selling interests in real property;
(b) making loans secured by interests in real property;
(c) acting as broker, agent, representative, or attorney of a person who buys or sells any interest in real property or who lends or borrows money with such interest as security.
Section 38-75-920. (A) A domestic title insurer shall establish and maintain a reinsurance reserve computed in accordance with this section, and all sums attributed to the reserve are at all times and for all purposes considered unearned portions of the original premiums. This reserve must be reported as a liability of the title insurer in its financial statements.
(B) The reinsurance reserve must be maintained by the title insurer for the protection of holders of title insurance policies. Except as provided in this section, assets equal in value to the reinsurance reserve are not subject to distribution among creditors or stockholders of the title insurer until all claims of policyholders or claims under reinsurance contracts have been paid in full, and all liability on the policies or reinsurance contracts has been paid in full and discharged or lawfully reinsured.
(C) A foreign or alien title insurer licensed to transact title insurance business in this State shall maintain at least the same reserves on title insurance policies issued on properties located in this State as are required of domestic title insurers, unless the laws of jurisdiction of domicile of the foreign or alien title insurer require a higher amount.
(D) The reinsurance reserve consists of:
(1) the amount of the reinsurance reserve on the effective date of this act; and
(2) one dollar and fifty cents a policy and, in addition, a sum equal to twelve and one-half cents for each one thousand dollars of net retained liability under each title insurance policy on a single risk written on properties located in this State written after the effective date of this act.
(E) Amounts placed in the reinsurance reserve in any year in accordance with item (2) of subsection (D) of this section must be deducted in determining the net profit of the title insurer for that year.
(F) A title insurer shall release from the reinsurance reserve a sum equal to ten percent of the amount added to the reserve during a calendar year on July first of each of the five years following the year in which the sum was added and shall release from the reinsurance reserve a sum equal to three and one-third percent of the amount added to the reserve during that year on each succeeding July first until the entire amount for that year has been released. The amount of the reinsurance reserve or similar unearned premium reserve maintained before the effective date of this act must be released in accordance with the law in effect before the effective date of this act.
Section 38-75-930. (A) If a domestic title insurer becomes insolvent, is in the process of liquidation or dissolution, or is in the possession of the Commissioner:
(1) the amount of the assets of the title insurance company equal to the reinsurance reserve then remaining may be used with the written approval of the Commissioner to pay for reinsurance of the liability of each title insurer upon all outstanding title insurance policies or reinsurance agreements to the extent for which claims for losses by the holders are not then pending. The balance of the assets, if any, equal to the reinsurance reserve then may be transferred to the general assets of the title insurer;
(2) the assets net of the reinsurance reserve must be available to pay claims for losses sustained by holders of title insurance policies then pending or arising up to the time reinsurance is effected. If claims for losses exceed other assets of the title insurer, the claims, when established, must be paid pro rata out of the surplus assets attributable to the reinsurance reserve, to the extent of the surplus, if any.
(B) If reinsurance is not obtained, assets equal to the reinsurance reserve and assets constituting minimum capital, or so much as remains after outstanding claims have been paid, constitute a trust fund to be held and invested by the Commissioner for twenty years, out of which claims of policyholders must be paid as they arise. The balance, if any, of the trust fund shall revert to the general assets of the title insurer at the expiration of twenty years.
Section 38-75-940. (A) All title insurers licensed in this State shall establish and maintain reserves against unpaid losses and loss expenses.
(B) Upon receiving written notice from or on behalf of the insured of a title defect in or lien or adverse claim against the title of the insured that may result in a loss or cause expense to be incurred in the proper disposition of the claim, the title insurer shall determine the amount to be added to the reserve which shall reflect a careful estimate of the loss or loss expense likely to result by reason of the claim.
(C) Reserves required under this section may be revised from time to time and must be redetermined at least once each year.
(D) If the Commissioner determines that the loss and loss expense reserves of the title insurer are inadequate, he may require the title insurer to increase the amount of reserves to an amount he considers reasonable.
Section 38-75-950. (A) A title insurer may obtain reinsurance for all or any part of its liability under one or more of its title insurance policies or reinsurance agreements and also may reinsure title insurance policies issued by other title insurers on risks located in this State or elsewhere. Reinsurance on policies issued on properties located in this State must be obtained from title insurers licensed to transact title insurance business in this State.
(B) Upon application by a title insurer, the Commissioner may permit the insurer to obtain reinsurance from a title insurer not licensed in this State upon the following conditions:
(1) the title insurer is unable to obtain reinsurance from a title insurer licensed in this State; and
(2) the unlicensed title insurer meets the requirements of approved reinsurers in Section 38-5-60.
Section 38-75-960. (A) No title insurer or title insurance agent may accept an order for, issue a title insurance policy to, or provide services to an applicant if it knows or has reason to believe that the applicant was referred to it by any producer of title business or by any associate of the producer where the producer, the associate, or both, have a
financial interest in the title insurer or title agent to which business is referred unless the producer has disclosed to the buyer, seller, or lender the financial interest of the producer of title business or associate referring the title business. The disclosure must be made in writing on forms prescribed by the Commissioner.
The title insurer or agent shall maintain the disclosure forms for a period of three years.
(B) Each title insurer and title agent shall file with the Commissioner, on forms prescribed by the Commissioner, reports setting forth the names and addresses of those persons, if any, who have had a financial interest in the title insurer or title agent during the calendar year who are known or reasonably believed by the title insurer or title agent to be producers of title business or associates of producers.
Each title insurer shall file the report required under this subsection with its application for a license and at any time there is a change in the information provided in the last report.
Each title agent shall file the report required under this subsection with its application for license and at any time there is a change in the information provided in its last report.
Each title insurer or title agent licensed on the effective date of this act, shall file the report required under this subsection within ninety days after the effective date of this act.
Section 38-75-970. (A) Premium rates may not be inadequate, excessive, or unfairly discriminatory.
(B) Rates are excessive if in the aggregate they are likely to produce a long-run profit that is unreasonably high in relation to the riskiness of the class of business, or if expenses are unreasonably high in relation to the services rendered.
(C) Rates are inadequate if they are clearly insufficient, together with investment income attributable to them, to sustain projected losses and expenses or if the continued use of the fees have the effect of substantially lessening competition or the effect of tending to create a monopoly.
(D) Premium rates are unfairly discriminatory if the premium charged for any classification is not reasonably related to the services performed or the risks assumed by the insurer. Within rate classifications, premiums, to a reasonable degree, may be less in the case of smaller insurances and the excess may be charged against larger insurances without rendering the rate unfairly discriminatory.
(E) In making or reviewing rates, due consideration must be given to past and prospective loss experience, to exposure to loss, to underwriting practice and judgment, to past and prospective expenses including amounts paid to or retained by title agents, to investment income, to a reasonable margin for profit and contingencies, and to all other relevant factors both within and outside this State. A five-year experience period is required for all filings of rates provided that the filing of any insurer in existence less than five years must be supported by experience consistent with the period of its existence.
Section 38-75-980. (A) A title insurer shall file with the Commissioner the premium rate schedules it proposes to use in this State. If the Commissioner finds in his review of a filing that it does not violate Section 38-75-970, he shall approve the schedule within sixty days of filing. Before the approval, the Commissioner may conduct public hearings with respect to the filing. Filings that the Commissioner has failed to approve or disapprove within sixty days of filing is considered approved. Upon notice to the title insurer, the period for review of the rate filing may be extended for an additional sixty days.
(B) If after the approval of filing the Commissioner believes that the filing does not meet the requirements of this section or is otherwise contrary to law, or if any party having an interest in the filing makes a written complaint to the Commissioner setting forth specific and reasonable grounds for the complaint, or if any insurer, upon notice of disapproval by the Commissioner of a filing pursuant to this section, should so request, the Commissioner shall hold a hearing within thirty days and give written notice of the hearing to all parties in interest. The Commissioner may confirm, modify, change, or rescind any previous action if warranted by the facts shown at the hearing.
Section 38-75-990. (A) Each title insurer and title agent shall print and make available to the public schedules of its currently effective premiums and charges.
(B) The schedules shall:
(1) be dated to show the date the premiums and charges became effective;
(2) be kept available to the public during normal business hours in each office of the title insurer or title agent in this State; and
(3) set forth the total premium and charge for each type of title insurance policy or service issued or provided by the title insurer or title agent either by stating the premium or charge for each type of title insurance policy in given amounts of coverage or for each service, or by stating the premium or charge rate a unit amount of coverage, or by a combination of the two.
(C) Each title insurer and title agent shall keep a complete file of its schedules of premiums and charges and of all changes and amendments to those schedules until at least five years after they have ceased to be in effect.
Section 38-75-1000. A title insurer may not pay a commission, directly or indirectly, of greater than sixty percent on a title insurance policy."
SECTION 2. This act takes effect upon approval by the Governor.