Section 21.27.570. Operating requirements for controlling insurance producers.

   (a) If the aggregate amount of gross written premium on business placed by a controlling insurance producer exceeds five percent of the admitted assets of the controlled insurer for a calendar year as reported in the insurer's most recent financial statement filed with the director, the controlling insurance producer may not place business with the controlled insurer and the controlled insurer may not accept business from the controlling insurance producer unless a written contract is in effect between the parties that
        (1) establishes the responsibilities of each party, indicates each party's share of responsibility for each particular function, and specifies the division of responsibilities;
        (2) has been approved by the board of directors of the controlled insurer;
        (3) contains the following minimum provisions:
             (A) the controlled insurer may terminate the contract for cause upon written notice sent to the controlling producer and shall suspend the authority of the controlling insurance producer to write business during a dispute regarding the cause for termination;
             (B) the controlling insurance producer shall render accounts to the controlled insurer detailing all transactions, including information in the accounts necessary to support compensation, commissions, charges, and other fees received by, or owing to, the controlling producer;
             (C) the controlling insurance producer shall remit money due under the contract to the controlled insurer at least monthly;
             (D) premiums or installments collected shall be due not later than 90 days after the effective date of coverage placed with the controlled insurer;
             (E) money collected for the account of a controlled insurer shall be held by the controlling insurance producer as a fiduciary, except a controlling insurance producer not required to be licensed under this chapter shall act as a fiduciary in compliance with the requirements of its domiciliary jurisdiction;
             (F) all payments on behalf of the controlled insurer shall be held by the controlling insurance producer as a fiduciary;
             (G) the controlling insurance producer shall maintain separate records for each controlled insurer in a form usable by the controlled insurer; the controlled insurer or its authorized representative shall have the right to audit and the right to copy all accounts and records related to the controlled insurer's business; the director, in addition to authority granted in this title, shall have access to all books, bank accounts, and records of the controlling insurance producer in a form usable to the director;
             (H) the contract may not be assigned in whole or in part by the controlling insurance producer;
             (I) the controlled insurer shall provide, and the controlling producer shall follow, written underwriting standards, rules, procedures, and manuals that must include the conditions for acceptance or rejection of risks, including types of risks that may be written, maximum limits of liability, applicable exclusions, territorial limitations, policy cancellation provisions, the maximum policy term, the rating system, and basis of the rates to be charged;
             (J) the underwriting standards, rules, procedures, and manuals shall be the same as those applicable to comparable business placed with the controlled insurer by insurance producers other than the controlling insurance producer;
             (K) the rates and terms of the controlling insurance producer's compensation including commissions, charges, and other fees may not be greater than those applicable to comparable business placed with the controlled insurer by insurance producers other than the controlling insurance producer;
             (L) the controlled insurer shall establish a limit, that may be different for each kind or class of business, on the amount of premium that the controlling insurance producer may place with the controlled insurer in relation to the controlled insurer's surplus and total writings;
             (M) the controlled insurer shall notify the controlling insurance producer if an applicable limit is approached and the controlling insurance producer may not place and the controlled insurer may not accept business if the limit under (L) of this paragraph has been reached;
             (N) if the contract provides that the controlling insurance producer, on insurance placed with the controlled insurer, is to be compensated contingent upon the controlling insurer's profits on the placed insurance, the contingent compensation may not be determined or paid until
                  (i) at least five years after the premiums are earned on casualty business and at least one year after the premiums are earned on any other insurance;
                  (ii) a later period established by the director for specified kinds or classes of insurance; and
                  (iii) not until the profits have been verified under (b) of this section;
             (O) the controlling insurance producer may negotiate but may not bind reinsurance on behalf of the controlled insurer on insurance that the controlling insurance producer places with the controlled insurer, except that the controlling insurance producer may bind facultative reinsurance contracts under obligatory agreements if the contract with the controlled insurer contains reinsurance underwriting guidelines including, for both reinsurance assumed and ceded, a list of reinsurers with which automatic agreements are in effect, the coverage and amounts or percentages that may be reinsured, and commission schedules; and
        (4) provides that the controlled insurer has an audit committee composed of independent members of the board of directors that meet at least annually with management, the insurer's independent certified public accountants, and an independent actuary specialist acceptable to the director to review the adequacy of the insurer's reserves for losses incurred and outstanding.
   (b) In addition to any other required loss reserve certification, the controlled insurer shall annually obtain the opinion of an independent qualified actuary attesting to the adequacy of loss reserves established for losses incurred and outstanding on business produced by the controlling insurance producer. The controlled insurer shall file with the director on or before April 1 of each year an opinion of an independent actuary attesting to the adequacy of the reserves for losses incurred and outstanding and reporting the loss ratios for each kind and class of business placed with the controlled insurer by the controlling producer.
   (c) The controlled insurer shall annually report by kind and class of insurance in a form acceptable to the director the amount of compensation paid to the controlling producer, the percentage the compensation represents to the net premiums written, the amount of compensation paid to uncontrolling producers, and the percentage the compensation represents to the net premiums written.
   (d) A controlling insurance producer may be examined by the director as if it were the controlled insurer.
   (e) If the conservator, rehabilitator, or liquidator of a controlled insurer or formerly controlled insurer has reason to believe that the controlled insurer or formerly controlled insurer suffered loss or damage arising out of a failure to comply with this section by the controlling producer or another person, the conservator, rehabilitator, or liquidator may maintain a civil action for recovery of damages or other relief for the benefit of the controlled insurer or its estate.
   (f) In addition to any other liability and without intent to limit in any manner the rights of policyholders, claimants, auditors, creditors, or third parties, if the director determines after a hearing under AS 21.06.170 - 21.06.240 that a controlling insurance producer caused losses arising out of a violation of this section to a controlled insurer, the director may order the controlling insurance producer to make restitution to the controlled insurer, the rehabilitator, or the liquidator of the controlled insurer for the loss.
   (g) In addition to any other penalty provided by law, a person who violates this section is subject to the penalties provided under AS 21.27.440 and a controlled insurer's certificate of authority may be suspended or revoked. The director may also order the controlling producer to cease placing business with the controlled insurer.
   (h) This section does not apply to
        (1) a person appointed to act on behalf of the controlled insurer as a managing general agent under this chapter;
        (2) a person who receives no compensation based upon the amount of premiums written with the controlled insurer and who places insurance only with the controlled insurer, only with the controlled insurer and an admitted member or admitted members of the insurer's holding company system, or only with the controlled insurer's parent, affiliate, or subsidiary if admitted in this state;
        (3) a person who does not accept insurance placements directly from an insured and who only accepts insurance placements from a nonaffiliated subagent;
        (4) a controlled insurer and its controlling insurance producer if, except for insurance written through a residual market facility under this title, insurance placements are accepted only from a controlling producer, an insurance producer controlled by the controlled insurer, or a producer that is a subsidiary of the controlled insurer;
        (5)  [Repealed, Sec. 34 ch 52 SLA 2015].  
        (6) a risk apportionment plan under AS 21.39.150 or an assigned risk pool under AS 21.39.155.
   (i) Except as provided in this section, AS 21.22 applies to all parties within an insurance holding company system subject to this section.
   (j) A controlling insurance producer may not be appointed as a broker by a client in this state or relative to a subject resident, located, or to be performed in this state unless, in a form acceptable to the director, the controlling insurance producer has disclosed in writing to the client the relationship between the controlling insurance producer and controlled insurer, each client has acknowledged receipt of the disclosure, and a copy of the acknowledged disclosure is maintained by the controlling insurance producer in its records. The records shall be available for inspection by the director.

Authorities

21.27.900

Notes

Recent Bills that will modify this

HB 164 INSURANCE; RISK MG'T; HOLDING COMPANIES
SB 107 INSURANCE; RISK MG'T; HOLDING COMPANIES

References

AS 21.27.900 Definitions.

History

(Sec. 94 ch 67 SLA 1992; am Sec. 46 ch 62 SLA 1995; am Sec. 49 ch 81 SLA 2001; am Sec. 47, 48, 52 ch 34 SLA 2015)