23-62-404

Reinsurance intermediaries; licensing

(a) No person, firm, association, or corporation shall act as a reinsurance intermediary broker in this state if the reinsurance intermediary broker maintains an office either directly, or as a member or employee of a firm or association, or as an officer, director, or employee of a corporation:

(1) In this state, unless such reinsurance intermediary broker is a licensed producer in this state; or

(2) In another state, unless such reinsurance intermediary broker is a licensed producer in this state or such reinsurance intermediary broker is licensed in this state as a nonresident reinsurance intermediary.

(b) No person, firm, association, or corporation shall act as a reinsurance intermediary manager:

(1) For a reinsurer domiciled in this state, unless such reinsurance intermediary manager is a licensed producer in this state;

(2) In this state, if the reinsurance intermediary manager maintains an office either directly or as a member or employee of a firm or association, or as an officer, director, or employee of a corporation in this state, unless such reinsurance intermediary manager is a licensed producer in this state;

(3) In another state for a nondomestic insurer, unless such reinsurance intermediary manager is a licensed producer in this state or such person is licensed in this state as a nonresident reinsurance intermediary.

(1) File a bond in an amount from an insurer acceptable to the commissioner for the protection of the reinsurer; and

(2) Maintain an errors and omissions policy in an amount acceptable to the commissioner.

(d)(1) The commissioner may issue a reinsurance intermediary license to any person, firm, association, or corporation who has complied with the requirements of this subchapter.

(A) Any such license issued to a firm or association will authorize all the members of such firm or association and any designated employees to act as reinsurance intermediaries under the license, and all such persons shall be named in the application and any supplements thereto.

(B) Any such license issued to a corporation shall authorize all of the officers, and any designated employees and directors thereof, to act as reinsurance intermediaries on behalf of such corporation, and all such persons shall be named in the application and any supplements thereto.

(2)(A) If the applicant for a reinsurance intermediary license is a nonresident, such applicant, as a condition precedent to receiving or holding a license, shall designate the commissioner as agent for service of process in the manner, and with the same legal effect, provided for by this subchapter for designation of service of process upon unauthorized insurers; and also shall furnish the commissioner with the name and address of a resident of this state upon whom notices or orders of the commissioner or process affecting such nonresident reinsurance intermediary may be served.

(B) Such licensee shall promptly notify the commissioner in writing of every change in its designated agent for service of process, and such change shall not become effective until acknowledged by the commissioner.

(e)(1) The commissioner may refuse to issue a reinsurance intermediary license if, in his judgment, the applicant, anyone named on the application, or any member, principal, officer, or director of the applicant is not trustworthy, or that any controlling person of such applicant is not trustworthy to act as a reinsurance intermediary, or that any one (1) of the foregoing has given cause for revocation or suspension of such license, or has failed to comply with any prerequisite for the issuance of such license.

(2) Upon written request therefor, the commissioner will furnish a summary of the basis for refusal to issue a license, which document shall be privileged and not subject to s 25-19-101 et seq.

(f) Licensed attorneys at law of this state when acting in their professional capacity as such shall be exempt from this section.

23-62-405

Written authorization

(a) Transactions between a reinsurance intermediary broker and the insurer it represents in such capacity shall only be entered into pursuant to a written authorization, specifying the responsibilities of each party.

(b) The authorization shall, at a minimum, provide that:

(1) The insurer may terminate the reinsurance intermediary broker's authority at any time;

(2) The reinsurance intermediary broker will 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 (30) days of receipt;

(3) All funds collected for the insurer's account will be held by the reinsurance intermediary broker in a fiduciary capacity in a bank which is a qualified United States financial institution as defined in s 23-62-403;

(4) The reinsurance intermediary broker will comply with s 23-62-406;

(5) The reinsurance intermediary broker will comply with the written standards established by the insurer for the cession or retrocession of all risks; and

(6) The reinsurance intermediary broker will disclose to the insurer any relationship with any reinsurer to which business will be ceded or retroceded.

23-62-406

Records maintenance

(a) For at least ten (10) years after expiration of each contract of reinsurance transacted by the reinsurance intermediary broker, the reinsurance intermediary broker will 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 of cancellation;

(3) The 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 any retrocessions handled by the reinsurance intermediary broker;

(7) Related correspondence and memoranda;

(8) Proof of placement;

(9) Details regarding retrocessions handled by the reinsurance intermediary broker, including the identity of retrocessionaires and percentage of each contract assumed or ceded;

(10) Financial records, including but not limited to, premium and loss accounts; and

(11) When the reinsurance intermediary broker procures a reinsurance contract on behalf of a licensed ceding insurer:

(A) Directly from any 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 such reinsurer has delegated binding authority to the representative.

(b) The insurer will 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.

23-62-407

Prohibitions; disclosure of financial condition

(a) An insurer shall not engage the services of any person, firm, association or corporation to act as a reinsurance intermediary broker on its behalf unless such person is licensed as required by s 23-62-404.

(b) An insurer may not employ an individual who is employed by a reinsurance intermediary broker with which it transacts business, unless such reinsurance intermediary broker is under common control with the insurer and subject to the Insurance Holding Company Regulatory Act, s 23-63-501 et seq.

(c) The insurer shall annually obtain a copy of statements of the financial condition of each reinsurance intermediary broker with which it transacts business.

23-62-408

Contracts with reinsurance intermediary managers

(a) Transactions between a reinsurance intermediary manager and the reinsurer it represents in such capacity shall only be entered into pursuant to a written contract, specifying the responsibilities of each party, which shall be approved by the reinsurer's board of directors.

(b) At least thirty (30) days before such reinsurer assumes or cedes business through such producer, a true copy of the approved contract shall be filed with the commissioner for approval.

(1)(A) The reinsurer may terminate the contract for cause upon written notice to the reinsurance intermediary manager.

(B) The reinsurer may immediately suspend the authority of the reinsurance intermediary manager to assume or cede business during the pendency of any dispute regarding the cause for termination;

(2) The reinsurance intermediary manager will 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 on not less than a monthly basis.

(3)(A) All funds collected for the reinsurer's account will be held by the reinsurance intermediary manager in a fiduciary capacity in a bank which is a qualified United States financial institution as defined herein.

(B) The reinsurance intermediary manager may retain no more than three (3) months' estimated claims payments and allocated loss adjustment expenses.

(4) For at least ten (10) years after expiration of each contract of reinsurance transacted by the reinsurance intermediary manager, the reinsurance intermediary manager will 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 and notice required of cancellation, and disposition of outstanding reserves on covered risks;

(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 any retrocessions handled by the reinsurance intermediary manager;

(G) Related correspondence and memoranda;

(H) Proof of placement;

(I) Details regarding retrocessions handled by the reinsurance intermediary manager, as permitted by s 23-62-410(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; and

(K) When the reinsurance intermediary manager places a reinsurance contract on behalf of a ceding insurer:

(i) Directly from any 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 such reinsurer has delegated binding authority to the representative;

(5) The reinsurer will 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 cannot be assigned in whole or in part by the reinsurance intermediary manager;

(7) The reinsurance intermediary manager will comply with the written underwriting and rating standards established by the insurer for the acceptance, rejection, or cession of all risks;

(8) Set forth the rates, terms, and purposes of commissions, charges, and other fees which the reinsurance intermediary manager may levy against the reinsurer;

(9) If the contract permits the reinsurance intermediary manager to settle claims on behalf of the reinsurer:

(A) All claims will be reported to the reinsurer in a timely manner;

(B) A copy of the claim file will be sent to the reinsurer at its request or as soon as it becomes known that the claim:

(i) Has the potential to exceed the lesser of an amount determined by the commissioner or the limit set by the reinsurer;

(ii) Involves a coverage dispute;

(iii) May exceed the reinsurance intermediary manager's claims settlement authority;

(iv) Is open for more than six (6) months; or

(v) Is closed by payment of the lesser of an amount set by the commissioner or an amount set by the reinsurer;

(C) All claim files will be the joint property of the reinsurer and reinsurance intermediary manager. However, upon an order of liquidation of the reinsurer such files shall become the sole property of the reinsurer or its estate; the reinsurance intermediary manager shall have reasonable access to and the right to copy the files on a timely basis;

(D) Any 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, that such interim profits will not be paid until one (1) year after the end of each underwriting period for property business and five (5) 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 s 23-62-410(c);

(11) The reinsurance intermediary manager will annually provide the reinsurer with a statement of its financial condition prepared by an independent certified accountant;

(12) The reinsurer shall periodically, at least semi-annually, conduct an on-site review of the underwriting and claims processing operations of the reinsurance intermediary manager;

(13) The reinsurance intermediary manager will disclose to the reinsurer any relationship it has with any insurer prior to ceding or assuming any business with such insurer pursuant to this contract; and

(14) The acts of the reinsurance intermediary manager shall be deemed to be the acts of the reinsurer on whose behalf it is acting.

23-62-409

Prohibited activities

The reinsurance intermediary manager shall not:

(1)(A) Bind retrocessions on behalf of the reinsurer, except that the reinsurance intermediary manager may bind facultative retrocessions pursuant to obligatory facultative agreements if the contract with the reinsurer contains reinsurance underwriting guidelines for such retrocessions.

(B) Such guidelines shall include a list of reinsurers with which such automatic agreements are in effect, and for each such 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 any producer without assuring that the producer is lawfully licensed 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 the lesser of an amount specified by the reinsurer or one (1%) percent of the reinsurer's policyholder's surplus as of December 31 of the last complete calendar year;

(5)(A) Collect any payment from a retrocessionaire or commit the reinsurer to any claim settlement with a retrocessionaire, without prior approval of the reinsurer;

(B) If prior approval is given, a report must be promptly forwarded to the reinsurer;

(6) Jointly employ an individual who is employed by the reinsurer; or

(7) Appoint a reinsurance intermediary submanager.

23-62-410

Duties of reinsurers

(a) A reinsurer shall not engage the services of any person, firm, association or corporation to act as a reinsurance intermediary manager on its behalf unless such person is licensed as required by s 23-62-404.

(b) The reinsurer shall annually obtain a copy of statements of the financial condition of each reinsurance intermediary manager which such reinsurer has engaged, prepared by an independent certified accountant in a form acceptable to the commissioner.

(c)(1) If a reinsurance intermediary manager establishes loss reserves, the reinsurer shall annually 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.

(2) This opinion shall be in addition to any other required loss reserve certification.

(d) Binding authority for all retrocessional contracts or participation in reinsurance syndicates shall rest with an officer of the reinsurer who shall not be affiliated with the reinsurance intermediary manager.

(e) Within thirty (30) days of termination of a contract with a reinsurance intermediary manager, the reinsurer shall provide written notification of such termination to the commissioner.

(f)(1) A reinsurer shall not appoint to its board of directors, any officer, director, employee, controlling shareholder or subproducer of its reinsurance intermediary manager.

(2) This subsection shall not apply to relationships governed by s 23-63-501 et seq.

23-62-411

Examination; access to records

(a)(1) A reinsurance intermediary shall be subject to examination by the commissioner.

(2) The commissioner shall 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 it were the reinsurer.

23-62-412

Penalties for violations

(a) A reinsurance intermediary, insurer or reinsurer found by the commissioner, after a hearing conducted in accordance with ss 23-61-301 -- 23-61-307, to be in violation of any provision of this subchapter shall:

(1) For each separate violation, pay a penalty in an amount not exceeding five thousand dollars ($5,000);

(2) Be subject to revocation or suspension of its license; and

(3) If a violation was committed by the reinsurance intermediary, such reinsurance intermediary shall 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 such violation.

(b) The decision, determination, or order of the commissioner pursuant to subsection (a) of this section shall be subject to judicial review pursuant to s 23-61-307.

(c) Nothing contained in this section shall affect the right of the commissioner to impose any other penalties provided in the insurance law.

(d) Nothing contained in this subchapter is intended to or shall in any manner limit or restrict the rights of policyholders, claimants, creditors, or other third parties or confer any rights to such persons.

23-62-413

Regulatory authority

The commissioner may adopt reasonable rules and regulations for the implementation and administration of the provisions of this subchapter.