CHAPTER 4053. MANAGING GENERAL AGENTS - Texas Statutes

INSURANCE CODE

TITLE 13. REGULATION OF PROFESSIONALS

SUBTITLE B. AGENTS

CHAPTER 4053. MANAGING GENERAL AGENTS

SUBCHAPTER A. GENERAL PROVISIONS

Sec. 4053.001. DEFINITIONS. In this chapter:

(1) "Affiliate" means a person who is classified as an affiliate

under Section 823.003(a).

(2) "Insurer" means an insurance company, carrier, corporation,

reciprocal or interinsurance exchange, mutual, association,

county mutual insurance company, Lloyd's plan, or other insurance

carrier authorized to engage in the business of insurance in this

state.

(3) "Managing general agent" means a person, firm, or

corporation that has supervisory responsibility for the local

agency and field operations of an insurer in this state or that

is authorized by an insurer to accept or process on the insurer's

behalf insurance policies produced and sold by other agents.

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 7, eff. April 1,

2005.

Sec. 4053.002. EXCEPTION. An agent licensed under Subchapter E,

Chapter 981, Subchapters B-E or I, Chapter 4051, or Chapter 4056

is not a managing general agent unless the agent accepts 50

percent or more of the agent's total annual business or does

$500,000 or more of total annual business as measured by premium

volume, whichever amount is less, from insurance policies

produced and sold by other agents.

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 7, eff. April 1,

2005.

Amended by:

Acts 2007, 80th Leg., R.S., Ch.

548, Sec. 2.25, eff. September 1, 2007.

Sec. 4053.003. INAPPLICABILITY OF CHAPTER. This chapter does

not apply to:

(1) the transaction of the business of life, health, and

accident insurance, including variable life insurance and

variable annuity contracts;

(2) a full-time salaried employee of an insurer acting for and

in connection with the insurance business of the insurer; or

(3) an adjuster or inspector of risks for an insurer.

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 7, eff. April 1,

2005.

Sec. 4053.004. REGULATION OF MANAGING GENERAL AGENTS. This

title applies to the licensing and regulation of a person acting

as a managing general agent.

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 7, eff. April 1,

2005.

Sec. 4053.005. RULES. The commissioner may adopt reasonable

rules for the administration of this chapter.

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 7, eff. April 1,

2005.

SUBCHAPTER B. LICENSE REQUIREMENTS

Sec. 4053.051. LICENSE REQUIRED; EXEMPTIONS. (a) Except as

provided by Subsection (b), a person, firm, or corporation may

not act as a managing general agent unless the person, firm, or

corporation holds a license issued under this chapter.

(b) A business corporation is not required to hold a license

issued under this chapter to act as a managing general agent if:

(1) the corporation is authorized to engage in business in this

state;

(2) all of the corporation's outstanding stock is solely owned

by an insurer authorized to engage in business in this state and

the corporation's business affairs are completely controlled by

that insurer;

(3) the principal purpose for which the corporation exists is to

facilitate the accumulation of commissions from the insurer and

its subsidiaries and affiliates for the account of and payment to

an agent who could otherwise lawfully receive the commissions

directly from the insurer and its subsidiaries and affiliates;

and

(4) the corporation does not engage in any other act of a

managing general agent as provided by this chapter.

(c) Notwithstanding Subsection (b), the managing general agent

shall execute on the insurer's behalf a contract entered into

with an agent.

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 7, eff. April 1,

2005.

Sec. 4053.052. ISSUANCE OF TEMPORARY OR EMERGENCY LICENSE. The

commissioner may, without requiring an examination, issue a

temporary or emergency license under this chapter to an applicant

for a period not to exceed six months:

(1) on the death or disability of a managing general agent or

for another good cause satisfactory to the commissioner; and

(2) if the applicant meets the other requirements of this

chapter.

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 7, eff. April 1,

2005.

Sec. 4053.053. SINGLE LICENSE REQUIRED. A license issued under

this chapter entitles the license holder to represent or act for

one or more insurers as a managing general agent. The license

holder is not required to hold a separate license for each

insurer the license holder represents.

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 7, eff. April 1,

2005.

Sec. 4053.054. NOTICE AND APPROVAL OF APPOINTMENT. (a) Each

appointment to act as a managing general agent shall be reported

to the commissioner on a form prescribed by the commissioner.

(b) The form must include:

(1) the details required by rules adopted under this chapter;

(2) the insurer's name and identifying number;

(3) the managing general agent's name and address;

(4) a statement by an officer of the insurer that the officer or

the officer's agent has personal knowledge that the managing

general agent has had experience or instruction that qualifies

the agent to act as a managing general agent;

(5) a statement of whether the managing general agent may

exercise claim settlement authority for the insurer and, if so:

(A) whether that authority exceeds $25,000 on any one claim; and

(B) whether that authority includes third-party liability other

than property damage; and

(6) a statement of whether funds exceeding $100,000 are

customarily held by the managing general agent to pay losses and

loss adjustment expenses for the insurer.

(c) For each additional appointment for which a managing general

agent applies, the agent shall pay a nonrefundable fee in an

amount not to exceed $16 as determined by the department.

(d) If approval of an additional appointment is not received

from the commissioner before the eighth day after the date the

commissioner receives the completed application and fee, the

managing general agent and insurer may assume, in the absence of

notice of disapproval from the commissioner, that the

commissioner approves the application and the managing general

agent may act for the insurer.

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 7, eff. April 1,

2005.

Sec. 4053.055. LAPSE OF LICENSE. If a license holder is not

appointed or under appointment to represent an insurer at the

time the license is subject to renewal, the license lapses and

the commissioner shall deny the renewal application.

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 7, eff. April 1,

2005.

SUBCHAPTER C. POWERS AND DUTIES OF MANAGING GENERAL AGENTS

Sec. 4053.101. GENERAL POWERS AND DUTIES. A managing general

agent acting for an insurer may:

(1) receive and pass on daily reports and monthly accounts;

(2) receive and be responsible for agency balances;

(3) handle the adjustment of losses; or

(4) appoint or direct general property and casualty agents and

personal lines property and casualty agents in this state.

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 7, eff. April 1,

2005.

Amended by:

Acts 2007, 80th Leg., R.S., Ch.

548, Sec. 2.26, eff. September 1, 2007.

Sec. 4053.102. CONTRACTS. (a) An insurer may not accept

business from a managing general agent and the agent may not

place business with the insurer without a written contract that

addresses:

(1) the responsibilities of each party;

(2) cancellation or termination;

(3) reports, records, and auditing; and

(4) if applicable:

(A) premium volume limits;

(B) appointment or cancellation of agents;

(C) claims settlement;

(D) underwriting; and

(E) reinsurance.

(b) The commissioner may adopt rules establishing requirements

for a contract with a managing general agent.

(c) A contract with a managing general agent and a report or

record submitted under that contract are subject to review by the

department under Section 38.001.

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 7, eff. April 1,

2005.

Sec. 4053.103. ACCOUNT REPORT. (a) At least once each calendar

quarter, a managing general agent shall submit an account report

to each insurer with whom the agent has a contract.

(b) The account report must include, as applicable, a statement

of:

(1) written, earned, and unearned premiums;

(2) losses and loss expenses paid and outstanding;

(3) losses incurred but not reported; and

(4) management fees.

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 7, eff. April 1,

2005.

Sec. 4053.104. SEPARATE RECORDS. (a) For each insurer with

which a managing general agent has a contract, the agent shall

maintain separate records of the business handled by the agent

for the insurer.

(b) The managing general agent shall make a record required

under Subsection (a) available for inspection by:

(1) each insurer; and

(2) the department's examiners.

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 7, eff. April 1,

2005.

Sec. 4053.105. ESCROW ACCOUNT. (a) A managing general agent

shall maintain an escrow account in a bank that:

(1) is a member of the Federal Reserve System; and

(2) has its accounts insured by the Federal Deposit Insurance

Corporation.

(b) On receipt, the managing general agent shall deposit in the

escrow account all money collected for each insurer with which

the agent has a contract.

(c) Except as provided by the contract required by Section

4053.102, a managing general agent may not use, take as an

offset, or convert money that is or should have been deposited in

the escrow account.

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 7, eff. April 1,

2005.

Sec. 4053.106. FIDUCIARY CAPACITY. A managing general agent

holds money on behalf of an insured or insurer in a fiduciary

capacity and shall properly account for that money as required by

law, department rules, and a contract with an insurer. The

department's examiners may audit money held in a fiduciary

capacity.

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 7, eff. April 1,

2005.

Sec. 4053.107. FINANCIAL EXAMINATION. (a) As the commissioner

considers necessary, a managing general agent shall submit to an

examination of the agent's financial condition and the agent's

compliance with the laws of this state affecting the conduct of

the agent's business.

(b) The examination may be conducted by:

(1) the commissioner;

(2) one or more commissioned examiners; or

(3) a certified public accountant or other person or firm

qualified to perform those examinations.

(c) The managing general agent shall pay the examination

expenses in an amount the commissioner certifies as just and

reasonable.

(d) A person with whom another state contracts to perform any

examination initiated by the other state of a managing general

agent licensed under this chapter shall register with and provide

the following information to the department's chief examiner:

(1) the person's name;

(2) if the person is not an individual, the identity of each

examiner or other person who will perform any part of the

examination;

(3) the name of the state that contracted with the person;

(4) the identity of the managing general agent to be examined;

and

(5) a description of each issue that the person has been

contracted to examine.

(e) It is a violation of this code for a person to accept

compensation from multiple states for the same examination, if

doing so results in duplicative costs to the managing general

agent being examined. It is not a violation of this code for:

(1) an examiner to conduct an examination of a managing general

agent for the benefit of multiple states in a coordinated

examination; and

(2) the examiner to accept compensation from the states

participating in the coordinated examination to reduce the

examination costs to the managing general agent being examined.

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 7, eff. April 1,

2005.

Amended by:

Acts 2009, 81st Leg., R.S., Ch.

1030, Sec. 3, eff. June 19, 2009.

Sec. 4053.108. REQUIRED NOTICES TO DEPARTMENT. (a) On forms

prescribed by the department, a managing general agent shall

notify the department not later than the 30th day after the date

any of the following occurs:

(1) balances due to an insurer for more than 90 days exceed:

(A) $1 million; or

(B) 10 percent of the insurer's policyholder surplus, as

reported in the annual statement filed with the department;

(2) balances due for more than 60 days from a property and

casualty agent or managing general agent appointed by or

reporting to the managing general agent exceed $500,000;

(3) authority to settle claims for an insurer is withdrawn;

(4) money held for an insurer for losses is greater than an

amount that is $100,000 more than the amount necessary to pay the

losses and loss adjustment expenses expected to be paid on the

insurer's behalf within the next 60-day period; or

(5) the contract required under Section 4053.102 is canceled or

terminated.

(b) Notwithstanding the time limitation imposed by Subsection

(a), the requirement to file under Subsections (a)(1), (2), and

(4) may be met with a single annual report if:

(1) the managing general agent routinely operates above the

limits established by those subsections; and

(2) the department verifies that fact in accordance with rules

adopted by the commissioner.

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 7, eff. April 1,

2005.

Sec. 4053.109. REINSURANCE. (a) A managing general agent may

not knowingly cede, arrange, facilitate, or bind an insurer to

reinsurance.

(b) Notwithstanding Subsection (a), a managing general agent may

bind a facultative reinsurance contract in accordance with an

obligatory facultative agreement if the contract with the insurer

contains reinsurance underwriting guidelines including, for both

assumed and ceded reinsurance:

(1) a list of reinsurers with whom the automatic agreements are

in effect;

(2) the coverages and amounts or percentages that may be

reinsured; and

(3) commission schedules.

(c) A managing general agent may not commit an insurer to

participate in insurance or reinsurance syndicates.

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 7, eff. April 1,

2005.

Sec. 4053.110. REDEMPTION OF CORPORATE SHARES. A corporation

acting as a managing general agent may redeem the shares of a

shareholder or a deceased shareholder:

(1) on terms agreed on by the board of directors and the

shareholder or the shareholder's personal representative; or

(2) at a price and on terms provided in the articles of

incorporation, the bylaws, or an existing contract entered into

between the shareholders.

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 7, eff. April 1,

2005.

SUBCHAPTER D. ENFORCEMENT

Sec. 4053.151. DISCIPLINARY ACTION. A person, firm, or

corporation that violates this chapter or a rule or order adopted

under this title, including this chapter, is subject to:

(1) Subchapters B and C, Chapter 4005; and

(2) Chapter 82.

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 7, eff. April 1,

2005.

Sec. 4053.152. GUARANTY FUND REIMBURSEMENT. (a) If a court

finds by a final nonappealable judgment that a violation of this

chapter by a managing general agent contributes materially to the

insolvency of an insurer under which the agent held an

appointment, the agent shall reimburse the appropriate guaranty

fund for money paid to cover losses of the insolvent insurer in

an amount equal to all payments made from that guaranty fund in

excess of:

(1) gross earned premiums and investment income earned on those

premiums; and

(2) loss reserves for that business.

(b) The reimbursement made under this section shall be used for

losses, loss adjustments, and administrative expenses on business

placed by the managing general agent.

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 7, eff. April 1,

2005.