31A-23a-702 - Minimum standards. - Utah Statutes

31A-23a-702. Minimum standards.
(1) This section applies if, in any calendar year, the aggregate amount of gross writtenpremium on business placed with a controlled insurer by a controlling producer is equal to orgreater than 5% of the admitted assets of the controlled insurer, as reported in the controlledinsurer's quarterly statement filed as of September 30 of the prior year.
(2) Notwithstanding Subsection (1), this section does not apply if:
(a) the controlling producer places insurance only with the controlled insurer, or onlywith the controlled insurer and members of the controlled insurer's holding company system, orwith the controlled insurer's parent, affiliate, or subsidiary and receives no compensation basedupon the amount of premiums written in connection with the insurance placed;
(b) the controlling producer accepts insurance placements only from nonaffiliatedproducers who are not controlling producers, and not directly from insureds; and
(c) the controlled insurer, except for insurance business written through a residual marketfacility, accepts insurance business only from a controlling producer, a producer controlled by thecontrolled insurer, or a producer that is a subsidiary of the controlled insurer.
(3) A controlled insurer may not accept business from a controlling producer and acontrolling producer may not place business with a controlled insurer unless there is a writtencontract between the controlling producer and the insurer that specifies the responsibilities ofeach party and that has been approved by the board of directors of the insurer. The contract shallcontain the following minimum provisions:
(a) The controlled insurer may terminate the contract for cause, upon written notice to thecontrolling producer. The controlled insurer shall suspend the authority of the controllingproducer to write business during the pendency of any dispute regarding the cause for thetermination.
(b) The controlling producer shall render accounts to the controlled insurer detailing allmaterial transactions, including information necessary to support all commissions, charges, andother fees received by, or owing to, the controlling producer.
(c) The controlling producer shall remit all funds due under the terms of the contract tothe controlled insurer at least monthly. The due date shall be fixed so that premiums or premiuminstallments collected shall be remitted no later than 90 days after the effective date of any policyplaced with the controlled insurer under the contract.
(d) All funds collected for the controlled insurer's account shall be held by the controllingproducer in a fiduciary capacity, in one or more appropriately identified bank accounts in banksthat are members of the Federal Reserve System FDIC, in accordance with applicable provisionsof this title. However, funds of a controlling producer not required to be licensed in this stateshall be maintained in compliance with the requirements of the controlling producer's domiciliaryjurisdiction.
(e) The controlling producer shall maintain separately identifiable records of businesswritten for the controlled insurer.
(f) The contract may not be assigned in whole or in part by the controlling producer.
(g) The controlled insurer shall provide the controlling producer with its underwritingstandards, rules, procedures, and manuals setting forth the rates to be charged, and the conditionsfor the acceptance or rejection of risks. The controlling producer shall adhere to the standards,rules, procedures, rates, and conditions. The standards, rules, procedures, rates, and conditionsshall be the same as those applicable to comparable business placed with the controlled insurer

by a producer other than the controlling producer.
(h) The contract shall state the rates and terms of the controlling producer's commissions,charges, or other fees and the purposes for those charges or fees. The rates of the commissions,charges, and other fees may not be greater than those applicable to comparable business andservices placed with the controlled insurer by producers other than controlling producers. Forpurposes of Subsections (3)(g) and (h), examples of "comparable business and services" includethe same lines of insurance, same kinds of insurance, same kinds of risks, similar policy limits,and similar quality of business.
(i) If the contract provides that the controlling producer, on insurance business placedwith the insurer, is to be compensated contingent upon the insurer's profits on that business, thenthe compensation may not be determined and paid until at least five years after the premiums onliability insurance are earned, and at least one year after the premiums are earned on any otherinsurance. In no event may the commissions be paid until the adequacy of the controlledinsurer's reserves on remaining claims has been independently verified pursuant to Subsection(5).
(j) The contract shall include a limit on the controlling producer's writings in relation tothe controlled insurer's surplus and total writings. The insurer may establish a different limit toeach line or subline of business. The controlled insurer shall notify the controlling producerwhen the applicable limit is approached and shall not accept business from the controllingproducer if the limit is reached. The controlling producer may not place business with thecontrolled insurer if it has been notified by the controlled insurer that the limit has been reached.
(k) The controlling producer may negotiate but may not bind reinsurance on behalf of thecontrolled insurer on business the controlling producer places with the controlled insurer. However, the controlling producer may bind facultative reinsurance contracts pursuant toobligatory facultative agreements if the contract with the controlled insurer contains underwritingguidelines including, for both reinsurance assumed and ceded, a list of reinsurers with which theautomatic agreements are in effect, the coverages and amounts or percentages that may bereinsured, and commission schedules.
(4) Each controlled insurer shall have an audit committee of the board of directors. Theaudit committee shall annually meet to review the adequacy of the insurer's loss reserves. Thecommittee shall meet with management, the insurer's independent certified public accountants,and an independent casualty actuary or any other independent loss reserve specialists acceptableto the commissioner.
(5) (a) In addition to any other required loss reserve certification, the controlled insurershall file with the commissioner on April 1 of each year an opinion of an independent casualtyactuary, or any other independent loss reserve specialist acceptable to the commissioner. Theopinion shall report loss ratios for each line of business written and shall attest to the adequacy ofloss reserves established for losses incurred and outstanding as of year-end on business placed bythe producer including losses incurred but not reported.
(b) The controlled insurer shall annually report to the commissioner the amount ofcommissions paid to the producer, the percentage that amount represents of the net premiumswritten, and comparable amounts and percentage paid to noncontrolling producers forplacements of the same kinds of insurance.

Renumbered and Amended by Chapter 298, 2003 General Session