SECTIONS 1781.1-1781.14 - California Statutes

INSURANCE CODE

SECTION 1781.1-1781.14

1781.1. This chapter shall be known and may be cited as the
Reinsurance Intermediary Act.

1781.2. As used in this chapter:
(a) "Actuary" means a person who is a member in good standing of
the American Academy of Actuaries, the Casualty Actuarial Society, or
the Society of Actuaries, and is qualified to sign statements of
actuarial opinion on loss reserves.
(b) "Controlling person" means any person, firm, association, or
corporation who directly or indirectly has the power to direct or
cause to be directed, the management, control, or activities of a
reinsurance intermediary.
(c) "Insurer" means any person, firm, association, or corporation
admitted by the commissioner as an insurer in this state.
(d) "Licensed producer" means a licensed insurance agent, broker,
or reinsurance intermediary.
(e) "Qualified United States financial institution" means an
institution that meets all of the following criteria:
(1) Is organized or (in the case of a domestic office of a foreign
banking organization) licensed, under the laws of the United States
or any state thereof.
(2) Is regulated, supervised, and examined by federal or state
authorities having regulatory authority over banks and trust
companies.
(3) Has been determined by either the commissioner or the
Securities Valuation Office of the National Association of Insurance
Commissioners, to meet standards of financial condition and standing
as are considered necessary and appropriate to regulate the quality
of financial institutions whose letters of credit will be acceptable
to the commissioner.
(f) "Reinsurance intermediary" means a reinsurance
intermediary-broker or a reinsurance intermediary-manager.
(g) "Reinsurance intermediary-broker" means any person, other than
an officer or employee of the ceding insurer, firm, association, or
corporation that 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 that insurer.
(h) "Reinsurance intermediary-manager" means any person, firm,
association, or corporation that has authority to bind, or manages
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, manager, or other
similar term. However, "reinsurance intermediary-manager" does not
include any of the following:
(1) An employee of the reinsurer.
(2) A domestic manager of a United States branch of an alien
reinsurer.
(3) An underwriting manager that, pursuant to contract, manages
all or any portion of the reinsurance operations of the reinsurer,
that is under common control with the reinsurer, that is subject to
Article 4.7 (commencing with Section 1215) of Chapter 2, and the
compensation of which is not based on the volume of premiums written.
(4) The manager of a group, association, pool, or organization of
insurers which engage in joint underwriting or joint reinsurance and
that are subject to examination by the insurance regulatory agency or
official of the state in which the manager's principal business
office is located.
(i) "Reinsurer" means any person, firm, association, or
corporation admitted in this state as an insurer with the authority
to assume reinsurance.
(j) "Violation" means the failure of a reinsurance intermediary,
or an insurer or reinsurer for whom the reinsurance intermediary was
acting, to comply with any provision of this chapter.

1781.3. (a) No person, firm, association, or corporation shall act
as a reinsurance intermediary-broker in this state unless licensed as
follows:
(1) If the reinsurance intermediary-broker maintains an office,
(either directly or as a member or employee of a firm or association,
or an officer, director, or employee of a corporation) in this
state, the reinsurance intermediary-broker shall be a licensed
producer in this state.
(2) If the reinsurance intermediary-broker does not maintain an
office in this state, the reinsurance intermediary-broker shall be a
licensed producer in this state or another state having a law
substantially similar to this chapter or shall be licensed in this
state as a nonresident reinsurance intermediary.
(3) Unless denied licensure pursuant to subdivision (e), a
nonresident person shall receive a reinsurance intermediary-broker
license if all of the following requirements are met:
(A) The person is currently licensed and in good standing in the
state, territory of the United States, or province of Canada where he
or she is licensed as a resident reinsurance intermediary-broker.
(B) The person has submitted the proper request for licensure and
has paid the fees required by paragraph (3) of subdivision (d).
(C) The person has submitted or transmitted to the commissioner
the application for licensure that the person submitted to the state,
territory of the United States, or province of Canada where he or
she is licensed as a resident, or submitted or transmitted to the
commissioner a completed National Association of Insurance
Commissioners Uniform Nonresident Application.
(D) The state, territory of the United States, or province of
Canada where the person holds a resident reinsurance
intermediary-broker license awards nonresident reinsurance
intermediary-broker licenses to residents of this state on the same
basis.
(b) No person, firm, association, or corporation shall 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 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 the reinsurance
intermediary-manager is a licensed producer in this state.
(3) In another state for a nondomestic admitted insurer, unless
the reinsurance intermediary-manager is a licensed producer in this
state or in another state having a law substantially similar to this
chapter or the person is licensed in this state as a nonresident
reinsurance intermediary.
(4) Unless denied licensure pursuant to subdivision (e), a
nonresident person shall receive a reinsurance intermediary-manager
license if all of the following requirements are met:
(A) The person is currently licensed and in good standing in the
state, territory of the United States, or province of Canada where he
or she is licensed as a resident reinsurance intermediary-manager.
(B) The person has submitted the proper request for licensure and
has paid the fees required by paragraph (3) of subdivision (d).
(C) The person has submitted or transmitted to the commissioner
the application for licensure that the person submitted to the state,
territory of the United States, or province of Canada where he or
she is licensed as a resident, or submitted or transmitted to the
commissioner a completed National Association of Insurance
Commissioners Uniform Nonresident Application.
(D) The state, territory of the United States, or province of
Canada where the person holds a resident reinsurance
intermediary-manager license awards nonresident reinsurance
intermediary-manager licenses to residents of this state on the same
basis.
(c) The commissioner may require a reinsurance
intermediary-manager subject to subdivision (b) to do both of the
following:
(1) File a fidelity bond issued by an admitted surety in an amount
determined by the commissioner for the protection of the reinsurer.
(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 that has
complied with the applicable requirements of this chapter. This
license, when issued to a firm or association, authorizes all the
members of the firm or association and any designated employees to
act as reinsurance intermediaries under the license, and all these
persons shall be named in the application and any supplements
thereto. This license, when issued to a corporation, authorizes all
of the officers, and any designated employees and directors thereof
to act as reinsurance intermediaries on behalf of the corporation,
and all these persons shall be named in the application and any
supplements thereto.
(2) Any application for licensure as a reinsurance intermediary
under this subdivision shall be made on a form prescribed by the
commissioner and shall be accompanied by an application fee of two
hundred fifty dollars ($250).
(e) The commissioner may refuse to issue a reinsurance
intermediary license if, in his or her judgment, the applicant, any
person named on the application, or any member, principal, officer,
or director of the applicant, is determined by the commissioner not
to be trustworthy, or that any controlling person of the applicant is
not trustworthy to act as a reinsurance intermediary, or that any of
the foregoing has given cause for revocation or suspension of a
reinsurance intermediary license, or has failed to comply with any
prerequisite for the issuance of such a license. Upon written request
therefor, the commissioner shall furnish the applicant with a
summary of the basis for refusal to issue a reinsurance intermediary
license, which document shall not be subject to inspection as a
public record.
(f) Licensed attorneys at law when acting in their professional
capacity as such shall be exempt from this section.
(g) A reinsurance intermediary-manager, when acting in that
capacity and in compliance with this chapter, shall not be required
to separately comply with Article 5.4 (commencing with Section
769.80) of Chapter 1 (if added by Senate Bill 1039 of the 1991-92
Regular Session) in order to engage in conduct authorized by both
this chapter and that article.

1781.4. Transactions between a reinsurance intermediary-broker and
the insurer it represents in that capacity shall only be entered into
pursuant to a written authorization specifying the responsibilities
of each party. The authorization shall, at a minimum, contain
provisions specifying all of the following rights and obligations:
(a) The insurer may terminate the reinsurance intermediary-broker'
s authority at any time.
(b) 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 30 days of receipt.
(c) 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.
(d) The reinsurance intermediary-broker will comply with Section
1781.5.
(e) The reinsurance intermediary-broker will comply with written
standards established by the insurer for the cession or retrocession
of all insured risks.
(f) The reinsurance intermediary-broker will disclose to the
insurer any relationship with any reinsurer to which insured risk
will be ceded or retroceded.

1781.5. (a) For at least 10 years after expiration of each contract
of reinsurance transacted by a reinsurance intermediary-broker, the
reinsurance intermediary-broker shall keep a complete record for each
transaction, including all of the following:
(1) The type of contract, limits, underwriting restriction,
classes or risks, and territory.
(2) The period of coverage, including effective and expiration
dates, cancellation provisions, and the notice required for
cancellation.
(3) Reporting and settlement requirements for 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 retrocession, handled by the reinsurance
intermediary-broker.
(7) Related correspondence and memoranda.
(8) Proof of placement.
(9) Details regarding retrocession handled by the reinsurance
intermediary-brokers, including the identity of retrocessionaires and
the percentage of each contract assumed or ceded.
(10) Financial records, including, but not limited to, premium and
loss accounts.
(11) If the reinsurance intermediary-broker procures a reinsurance
contract on behalf of an admitted ceding insurer directly from the
assuming reinsurer, the record of the transaction shall include
written evidence that the assuming reinsurer has agreed to assume the
risk. If the reinsurance intermediary-broker procures a reinsurance
contract on behalf of an admitted ceding insurer that is placed
through a representative of the assuming reinsurer, other than an
employee thereof, the record of the transaction shall include written
evidence that the reinsurer has delegated binding authority to the
representative.
(b) The insurer shall 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.

1781.6. (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 the person is licensed as
required by subdivision (a) of Section 1781.3.
(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 Article 4.7 (commencing with Section
1215) of Chapter 2.
(c) The insurer shall annually obtain a copy of statements of the
financial condition of each reinsurance intermediary-broker with
which it transacts business.

1781.7. Transactions between a reinsurance intermediary-manager and
the reinsurer it represents in that capacity shall only be entered
into pursuant to a written contract specifying the responsibilities
of each party, which shall be approved by the reinsurers's board of
directors. Before a reinsurer assumes or cedes business through such
a producer, a true copy of the approved contract shall be filed with
the commissioner. The contract shall, at a minimum, contain
provisions setting forth the following terms and conditions:
(a) The reinsurer may terminate the contract for cause upon
written notice to the reinsurance intermediary-manager. The reinsurer
may suspend the authority of the reinsurance intermediary-manager to
assume or cede business during the pendency of any dispute regarding
the cause for termination.
(b) The reinsurance intermediary-manager shall, not less than
quarterly, render calendar-year-basis and underwriting-year-basis
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 shall remit all funds due under
the contract to the reinsurer on not less than a quarterly basis.
(c) All funds collected for the reinsurer's account shall be held
by the reinsurance intermediary-manager in a fiduciary capacity in a
bank the accounts of which are insured by an agency or
instrumentality of the United States. The reinsurance
intermediary-manager may retain no more than three months' estimated
claims payment and allocated loss adjustment expenses. Unless the
funds held for each reinsurer by the reinsurance intermediary-manager
in the fiduciary account are reasonably and readily ascertainable
from its books of account and records, and the bank's books of
account and records, the reinsurance intermediary-manager shall
maintain a separate bank account for each reinsurer that it
represents. Notwithstanding the foregoing, the reinsurance
intermediary-manager shall maintain a separate bank account for each
reinsurer that it represents that is in receivership or liquidation
or that the commissioner determines to be in an impaired financial
condition.
(d) For at least 10 years after expiration of each contract of
reinsurance transacted by the reinsurance intermediary-manager, the
reinsurance intermediary-manager shall keep a complete record for
each transaction showing all of the following:
(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,
and disposition of outstanding reserves on covered risks.
(3) The reporting and settlement requirements with respect to
balances.
(4) The rate used to compute the reinsurance premium.
(5) The names and addresses of reinsurers.
(6) The rates of all reinsurance commissions, including the
commissions on any retrocessions handled by the reinsurance
intermediary-manager.
(7) Related correspondence and memoranda.
(8) Proof of placement.
(9) Details regarding retrocessions handled by the reinsurance
intermediary-manager, as permitted by subdivision (d) of Section
1781.9, including the identity of retrocessionaires and the
percentage of each contract assumed or ceded.
(10) Financial records, including, but not limited to, premium and
loss accounts.
(11) If the reinsurance intermediary-manager places a reinsurance
contract on behalf of a ceding insurer directly from the assuming
reinsurer, written evidence that the assuming reinsurer has agreed to
assume the risk. If the reinsurance intermediary-manager procures a
reinsurance contract on behalf of an admitted ceding insurer that is
placed through a representative of the assuming insurer, other than
an employee thereof, written evidence that the reinsurer has
delegated binding authority to the representative.
(e) The reinsurer shall 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.
(f) The contract cannot be assigned in whole or in part by the
reinsurance intermediary-manager.
(g) 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.
(h) The contract shall set forth the rates, terms, and purposes of
commissions, charges, and other fees that the reinsurance
intermediary-manager may levy against the reinsurer.
(i) If the contract permits the reinsurance intermediary-manager
to settle claims on behalf of the reinsurer, it shall contain all of
the following provisions:
(1) All claims shall be reported to the reinsurer in a timely
manner.
(2) A copy of the claim file shall be sent to the reinsurer at its
request or as soon as it becomes known that any of the following
applies to the claim:
(A) The claim has the potential to exceed the lesser of an amount
determined by the commissioner or the limit set by the reinsurer.
(B) The claim involves a coverage dispute.
(C) The claim may exceed the reinsurance intermediary-manager's
claims settlement authority.
(D) The claim is open for more than six months, unless the
reinsurer agrees in writing to waive this requirement, in which event
the reinsurance intermediary-manager shall annually provide the
reinsurer with an exhibit identifying and describing each open claim.
(3) All claim files shall be joint property of the reinsurer and
the reinsurer intermediary-manager. However, upon an order of
liquidation of the reinsurer, these files shall become the sole
property of the reinsurer or its estate, except when the reinsurance
intermediary-manager is also managing the claim files for other
reinsurers. In that event, the reinsurance intermediary-manager shall
simultaneously and immediately provide the liquidator with copies of
all the claim files. With respect to claim files pertaining solely
to a reinsurer in liquidation, the reinsurance intermediary-manager
shall have reasonable access to and the right to copy the files on a
timely basis.
(4) 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.
(j) If the contract provides for a sharing of interim profits by
the reinsurance intermediary-manager, interim profits shall 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 subdivision (c) of Section 1781.9.
(k) The reinsurance intermediary-manager shall annually provide
the reinsurer with a statement of its financial condition prepared by
an independent certified accountant and annually shall provide the
reinsurer with a certification from an independent certified public
accountant that the reinsurance intermediary-manager's allocations of
premiums and losses to the reinsurer have been made on a timely and
proper basis.
(l) The reinsurer shall periodically and at least semiannually
conduct an onsite review of the underwriting and claims processing
operations of the reinsurance intermediary-manager.
(m) The reinsurance intermediary-manager shall disclose to the
reinsurer any relationship it has with any insurer prior to ceding or
assuming any business with the insurer pursuant to the contract.
(n) Within the scope of its actual or apparent authority, the acts
of the reinsurance intermediary-manager shall be deemed to be the
acts of the reinsurer on whose behalf it is acting.

1781.8. The reinsurance intermediary-manager shall not do any of
the following:
(a) Directly or indirectly receive any compensation for the
placement of retrocessions on behalf of the reinsurer.
(b) Bind any retrocession which would increase the contractual
limit made available to the reinsurance intermediary-manager by the
reinsurer. However, the reinsurance intermediary-manager may bind
retrocessions which reduce or limit the commitments made on behalf of
the reinsurer by the reinsurance intermediary-manager. The
reinsurance intermediary-manager shall promptly inform the reinsurer
of the terms, conditions, and retrocessionaires of such a
retrocession arranged for its account.
(c) Commit the reinsurer to participate in reinsurance syndicates.
(d) Appoint any producer without assuring that the producer is
lawfully licensed to transact the type of reinsurance for which he or
she is appointed.
(e) 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 1 percent of the
reinsurer's policyholders' surplus as of December 31 of the last
complete calendar year.
(f) Collect any payment from a retrocessionaire or commit the
reinsurer to any claim settlement with a retrocessionaire, without
prior approval of the reinsurer. If prior approval is given, a report
must be promptly forwarded to the reinsurer.
(g) Jointly employ an individual who is employed by the reinsurer,
unless the reinsurance intermediary-manager is under common control
with the reinsurer that is subject to Article 4.7 (commencing with
Section 1215) of Chapter 2.
(h) Appoint a subreinsurance intermediary-manager.

1781.9. (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 the person is licensed as
required by subdivision (b) of Section 1781.3.
(b) A reinsurer shall annually obtain 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 shall annually obtain the opinion of an
actuary attesting to the adequacy of loss reserves or losses incurred
on the business produced by the reinsurance intermediary manager.
This opinion shall be in addition to any other required loss reserve
certification. For purposes of this section, a reinsurance
intermediary-manage r shall not be considered as establishing loss
reserves when the reinsurance intermediary-manager only utilizes loss
reserves which are the reinsurer's share of loss reserves
established by the ceding insurer, provided that the ceding insurer
has obtained 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.
(d) Binding authority for participation in reinsurance syndicates
shall rest with an officer of the reinsurer who shall not be
affiliated with the reinsurance intermediary-manager.
(e) Within 30 days of termination of a contract with a reinsurance
intermediary-manager, the reinsurer shall provide written
notification of the termination to the commissioner.
(f) A reinsurer shall not appoint to its board of directors, any
officer, director, employee, controlling shareholder, or subproducer
of its reinsurance intermediary-manager. This subdivision shall not
apply to relationships governed by Article 4.7 (commencing with
Section 1215) of Chapter 2.

1781.10. (a) A reinsurance intermediary shall be subject to
examination by the commissioner. The commissioner shall have access
to all books, bank accounts, and records of each reinsurance
intermediary in a form usable to the commissioner.
(b) A reinsurance intermediary-manager may be examined as if it
were the reinsurer.
(c) All documents and information disclosed in connection with the
examination of a reinsurance intermediary may be used by the
commissioner and shall be given confidential treatment by the
commissioner to the same extent as provided in Section 735.5 for
documents and information disclosed in connection with the
examination of an insurer.
(d) An examination shall be at the expense of the reinsurance
intermediary. The commissioner may revoke the license of the
reinsurance intermediary for a refusal to promptly pay the
examination expense when due.

1781.11. (a) A reinsurance intermediary, insurer, or reinsurer
found by the commissioner to be in violation of this chapter, after a
hearing conducted in accordance with Chapter 5 (commencing with
Section 11500) of Part 1 of Division 3 of Title 2 of the Government
Code by an administrative law judge either chosen under Section 11502
of the Government Code or appointed by the commissioner, shall be
subject to all of the following:
(1) For each separate violation, a penalty in an amount not
exceeding five thousand dollars ($5,000).
(2) Be subject to revocation or suspension of its license or
certificate of authority.
(b) Nothing contained in this section shall affect the right of
the commissioner to impose or issue any other penalties or orders
authorized by law.
(c) Nothing contained in this chapter shall in any manner limit or
restrict the rights of policyholders, claimants, creditors, or other
third parties or confer any rights upon those persons or otherwise
limit any other authority required or authorized to be exercised
under this code by the commissioner.

1781.12. The commissioner may adopt reasonable rules and
regulations for the implementation and administration of this
chapter.

1781.13. No insurer or reinsurer may continue to utilize the
services of a reinsurance intermediary on and after January 1, 1992,
unless utilization is in compliance with this chapter.

1781.14. (a) A reinsurance intermediary shall comply with any order
of a court of competent jurisdiction or a duly constituted
arbitration panel requiring the production of nonprivileged documents
by the reinsurance intermediary, or the testimony of an employee or
other individual otherwise under control of the reinsurance
intermediary with respect to any reinsurance transaction for which it
acted as a reinsurance intermediary.
(b) Compliance with subdivision (a) shall be subject to the right
of the reinsurance intermediary and the parties to the transaction to
object to the court or arbitration panel concerning the nature or
scope of the documents or testimony or the time within which it must
comply with the order. Failure to comply with the order shall be
deemed to be a material noncompliance with this chapter.