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Article 5.4. Managing General Agents of California Insurance Code >> Division 1. >> Part 2. >> Chapter 1. >> Article 5.4.
This act shall be known and may be cited as the Managing
General Agents Act.
As used in this article:
(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 a statement of actuarial opinion on loss reserves.
(b) "Insurer" means any person, firm, association, or corporation duly licensed as an insurer and operating under a certificate of authority in this state.
(c) "Managing General Agent" (MGA) means any person, firm, association, partnership, or corporation who negotiates and binds ceding reinsurance contracts on behalf of an insurer or manages all or part of the insurance business of an insurer (including the management of a separate division, department or underwriting office) and acts as an agent for that insurer whether known as an MGA, manager, or other similar term, who, with or without the authority, either separately or together with affiliates, produces, directly or indirectly, and underwrites an amount of gross direct written premium equal to or more than 5 percent of the policyholder surplus as reported in the last annual statement of the insurer in any one quarter or year together with one or more of the following: (1) adjusts or pays claims in excess of an amount determined by the commissioner, or (2) negotiates reinsurance on behalf of the insurer. Notwithstanding the above, the following persons shall not be considered as MGAs for the purposes of this act:
(1) An employee of the insurer.
(2) A United States manager of the United States branch of an alien insurer.
(3) An underwriting manager which, pursuant to contract, manages the insurance operations of the insurer, is under common control with the insurer, subject to the holding company regulatory act, and whose compensation is not based on the volume of premiums written.
(4) The attorney-in-fact authorized by and acting for the subscribers of a reciprocal insurer or interinsurance exchange under powers of attorney.
(d) "Underwrite" means the authority to accept or reject risk on behalf of the insurer.
(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 a statement of actuarial opinion on loss reserves.
(b) "Insurer" means any person, firm, association, or corporation duly licensed as an insurer and operating under a certificate of authority in this state.
(c) "Managing General Agent" (MGA) means any person, firm, association, partnership, or corporation who negotiates and binds ceding reinsurance contracts on behalf of an insurer or manages all or part of the insurance business of an insurer (including the management of a separate division, department or underwriting office) and acts as an agent for that insurer whether known as an MGA, manager, or other similar term, who, with or without the authority, either separately or together with affiliates, produces, directly or indirectly, and underwrites an amount of gross direct written premium equal to or more than 5 percent of the policyholder surplus as reported in the last annual statement of the insurer in any one quarter or year together with one or more of the following: (1) adjusts or pays claims in excess of an amount determined by the commissioner, or (2) negotiates reinsurance on behalf of the insurer. Notwithstanding the above, the following persons shall not be considered as MGAs for the purposes of this act:
(1) An employee of the insurer.
(2) A United States manager of the United States branch of an alien insurer.
(3) An underwriting manager which, pursuant to contract, manages the insurance operations of the insurer, is under common control with the insurer, subject to the holding company regulatory act, and whose compensation is not based on the volume of premiums written.
(4) The attorney-in-fact authorized by and acting for the subscribers of a reciprocal insurer or interinsurance exchange under powers of attorney.
(d) "Underwrite" means the authority to accept or reject risk on behalf of the insurer.
(a) No producer shall act in the capacity of an MGA with
respect to risks located in this state for an insurer that holds a
certificate of authority unless that producer is licensed as a
property broker-agent and casualty broker-agent, or as a life agent
in this state.
(b) No producer shall act in the capacity of an MGA representing an insurer domiciled in this state with respect to risks located outside this state unless that producer is licensed as a property broker-agent and casualty broker-agent, or as a life agent in this state.
(c) The commissioner may require a fidelity bond in an amount acceptable to him or her for the protection of the insurer.
(d) The commissioner may require the MGA to maintain an errors and omissions policy. If a policy is not generally available at a reasonable cost, the commissioner may, by rule, suspend the requirement of this subdivision until that coverage becomes generally available at a reasonable cost.
(b) No producer shall act in the capacity of an MGA representing an insurer domiciled in this state with respect to risks located outside this state unless that producer is licensed as a property broker-agent and casualty broker-agent, or as a life agent in this state.
(c) The commissioner may require a fidelity bond in an amount acceptable to him or her for the protection of the insurer.
(d) The commissioner may require the MGA to maintain an errors and omissions policy. If a policy is not generally available at a reasonable cost, the commissioner may, by rule, suspend the requirement of this subdivision until that coverage becomes generally available at a reasonable cost.
No producer acting in the capacity of an MGA shall place
business with an insurer unless there is in force a written contract
between the parties which sets forth the responsibilities of each
party and where both parties share responsibility for a particular
function, specifies the division of such responsibilities, and which
contains the following minimum provisions:
(a) The insurer may terminate the contract for cause upon written notice to the MGA. The insurer may suspend the underwriting authority of the MGA during the pendency of any dispute regarding the cause for termination.
(b) The MGA shall render accounts to the insurer detailing all transactions and remit all funds due under the contract to the insurer on not less than a monthly basis.
(c) All funds collected for the account of an insurer shall be held by the MGA in a fiduciary capacity in a bank or savings association the deposits of which are insured by the Bank Insurance Fund or the Savings Association Insurance Fund of the Federal Deposit Insurance Corporation. This account shall be used for all payments on behalf of the insurer. The MGA may retain no more than three months estimated claims payments and allocated loss adjustment expenses. The requirements of this subdivision shall be in addition to the requirements of Sections 1734 and 1735.
(d) Separate records of business written by the MGA shall be maintained. The insurer shall have access to and the right to copy all accounts and records related to its business in a form usable by the insurer and the commissioner shall have access to all books, bank accounts, and records of the MGA in a form usable to the commissioner. Those records shall be retained by the MGA, and shall be the joint property of the insurer and MGA.
(e) The contract may not be assigned in whole or part by the MGA.
(f) Appropriate underwriting guidelines including:
(1) The maximum annual premium volume.
(2) The basis of the rates to be charged.
(3) The types of risks which may be written.
(4) Maximum limits of liability.
(5) Applicable exclusions.
(6) Territorial limitations.
(7) Policy cancellation provisions.
(8) The maximum policy period. The insurer shall have the right to cancel or nonrenew any policy of insurance, except as limited by any other provision of this code.
(g) If the contract permits the MGA to settle claims on behalf of the insurer:
(1) All claims shall be reported to the insurer in a timely manner.
(2) A copy of the claim file shall be sent to the insurer at its request or as soon as it becomes known that the claim is subject to any of the following:
(A) Has the potential to exceed an amount determined by the commissioner or exceeds the limit set by the company, whichever is less.
(B) Involves a coverage dispute.
(C) May exceed the MGA's claims settlement authority.
(D) Is open for more than six months.
(E) Is closed by payment of an amount set by the commissioner or an amount set by the insurer, whichever is less.
(3) All claim files shall be the joint property of the insurer and MGA. However, upon an order of liquidation of the insurer such files shall become the sole property of the insurer or its estate; the MGA shall have reasonable access to and the right to copy the files on a timely basis.
(4) Any settlement authority granted to the MGA may be terminated for cause upon the insurer's written notice to the MGA or upon the termination of the contract. The insurer may suspend the settlement authority during the pendency of any dispute regarding the cause for termination.
(h) Where electronic claims files are in existence, the contract shall address the timely transmission of the data.
(i) If the contract provides for a sharing of interim profits by the MGA, and the MGA has the authority to determine the amount of the interim profits by establishing loss reserves or controlling claim payments, or in any other manner, interim profits will not be paid to the MGA until one year after they are earned for property insurance business and five years after they are earned on casualty business and not until the profits have been verified pursuant to Section 769.84.
(j) The MGA shall not do any of the following:
(1) Bind reinsurance or retrocessions on behalf of the insurer, except that the MGA may bind facultative reinsurance contracts pursuant to obligatory facultative agreements if the contract with the insurer contains reinsurance underwriting guidelines including, for both reinsurance assumed and ceded, a list of reinsurers with which such automatic agreements are in effect, the coverages and amounts or percentages that may be reinsured and commission schedules. This paragraph shall not operate to prohibit transactions which are subject to Chapter 6.5 (commencing with Section 1781.1) of Part 2 of Division 1, if the MGA has complied with all of the requirements of that chapter.
(2) Commit the insurer to participate in insurance or reinsurance syndicates.
(3) Appoint any agent without assuring that the agent is lawfully licensed to transact the type of insurance for which he or she is appointed.
(4) Without prior approval of the insurer, pay or commit the insurer to pay a claim over a specified amount, net of reinsurance, which shall not exceed 1 percent of the insurer's policyholder's surplus as of December 31 of the last completed calendar year.
(5) Collect any payment from a reinsurer or commit the insurer to any claim settlement with a reinsurer, without prior approval of the insurer. If prior approval is given, a report shall be promptly forwarded to the insurer.
(6) Permit any agent appointed pursuant to paragraph (3) to serve on the insurer's board of directors.
(7) Jointly employ an individual who is employed with the insurer.
(8) Appoint a sub-MGA.
(a) The insurer may terminate the contract for cause upon written notice to the MGA. The insurer may suspend the underwriting authority of the MGA during the pendency of any dispute regarding the cause for termination.
(b) The MGA shall render accounts to the insurer detailing all transactions and remit all funds due under the contract to the insurer on not less than a monthly basis.
(c) All funds collected for the account of an insurer shall be held by the MGA in a fiduciary capacity in a bank or savings association the deposits of which are insured by the Bank Insurance Fund or the Savings Association Insurance Fund of the Federal Deposit Insurance Corporation. This account shall be used for all payments on behalf of the insurer. The MGA may retain no more than three months estimated claims payments and allocated loss adjustment expenses. The requirements of this subdivision shall be in addition to the requirements of Sections 1734 and 1735.
(d) Separate records of business written by the MGA shall be maintained. The insurer shall have access to and the right to copy all accounts and records related to its business in a form usable by the insurer and the commissioner shall have access to all books, bank accounts, and records of the MGA in a form usable to the commissioner. Those records shall be retained by the MGA, and shall be the joint property of the insurer and MGA.
(e) The contract may not be assigned in whole or part by the MGA.
(f) Appropriate underwriting guidelines including:
(1) The maximum annual premium volume.
(2) The basis of the rates to be charged.
(3) The types of risks which may be written.
(4) Maximum limits of liability.
(5) Applicable exclusions.
(6) Territorial limitations.
(7) Policy cancellation provisions.
(8) The maximum policy period. The insurer shall have the right to cancel or nonrenew any policy of insurance, except as limited by any other provision of this code.
(g) If the contract permits the MGA to settle claims on behalf of the insurer:
(1) All claims shall be reported to the insurer in a timely manner.
(2) A copy of the claim file shall be sent to the insurer at its request or as soon as it becomes known that the claim is subject to any of the following:
(A) Has the potential to exceed an amount determined by the commissioner or exceeds the limit set by the company, whichever is less.
(B) Involves a coverage dispute.
(C) May exceed the MGA's claims settlement authority.
(D) Is open for more than six months.
(E) Is closed by payment of an amount set by the commissioner or an amount set by the insurer, whichever is less.
(3) All claim files shall be the joint property of the insurer and MGA. However, upon an order of liquidation of the insurer such files shall become the sole property of the insurer or its estate; the MGA shall have reasonable access to and the right to copy the files on a timely basis.
(4) Any settlement authority granted to the MGA may be terminated for cause upon the insurer's written notice to the MGA or upon the termination of the contract. The insurer may suspend the settlement authority during the pendency of any dispute regarding the cause for termination.
(h) Where electronic claims files are in existence, the contract shall address the timely transmission of the data.
(i) If the contract provides for a sharing of interim profits by the MGA, and the MGA has the authority to determine the amount of the interim profits by establishing loss reserves or controlling claim payments, or in any other manner, interim profits will not be paid to the MGA until one year after they are earned for property insurance business and five years after they are earned on casualty business and not until the profits have been verified pursuant to Section 769.84.
(j) The MGA shall not do any of the following:
(1) Bind reinsurance or retrocessions on behalf of the insurer, except that the MGA may bind facultative reinsurance contracts pursuant to obligatory facultative agreements if the contract with the insurer contains reinsurance underwriting guidelines including, for both reinsurance assumed and ceded, a list of reinsurers with which such automatic agreements are in effect, the coverages and amounts or percentages that may be reinsured and commission schedules. This paragraph shall not operate to prohibit transactions which are subject to Chapter 6.5 (commencing with Section 1781.1) of Part 2 of Division 1, if the MGA has complied with all of the requirements of that chapter.
(2) Commit the insurer to participate in insurance or reinsurance syndicates.
(3) Appoint any agent without assuring that the agent is lawfully licensed to transact the type of insurance for which he or she is appointed.
(4) Without prior approval of the insurer, pay or commit the insurer to pay a claim over a specified amount, net of reinsurance, which shall not exceed 1 percent of the insurer's policyholder's surplus as of December 31 of the last completed calendar year.
(5) Collect any payment from a reinsurer or commit the insurer to any claim settlement with a reinsurer, without prior approval of the insurer. If prior approval is given, a report shall be promptly forwarded to the insurer.
(6) Permit any agent appointed pursuant to paragraph (3) to serve on the insurer's board of directors.
(7) Jointly employ an individual who is employed with the insurer.
(8) Appoint a sub-MGA.
(a) The insurer shall have on file an independent financial
examination, in a form acceptable to the commissioner, of each MGA
with which it has done business.
(b) If an MGA establishes loss reserves, the insurer 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 MGA. This is in addition to any other required loss reserve certification.
(c) The insurer shall periodically (at least semiannually) conduct an onsite review of the underwriting and claims processing operations of the MGA.
(d) Binding authority for all reinsurance contracts or participation in insurance or reinsurance syndicates shall rest with an officer of the insurer, who shall not be affiliated with the MGA.
(e) Within 30 days of entering into or termination of a contract with an MGA, the insurer shall provide written notification of such appointment or termination to the commissioner. Notices of appointment of an MGA shall include a statement of duties which the applicant is expected to perform on behalf of the insurer, the lines of insurance for which the applicant is to be authorized to act, and any other information the commissioner may request.
(f) An insurer shall review its books and records each quarter to determine if any producer has become, by operation of Section 769.81, an MGA as defined in that section. If the insurer determines that a producer has become an MGA pursuant to the above, the insurer shall promptly notify the producer and the commissioner of that determination and the insurer and the producer shall fully comply with this article within 30 days.
(g) An insurer shall not appoint to its board of directors an officer, director, employee, any agent appointed pursuant to paragraph (3) of subdivision (j) of Section 769.83, or controlling shareholder of its MGAs. This subdivision shall not apply to relationships governed by Article 4.7 (commencing with Section 1215) of Chapter 2 of Part 2 of Division 1.
(b) If an MGA establishes loss reserves, the insurer 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 MGA. This is in addition to any other required loss reserve certification.
(c) The insurer shall periodically (at least semiannually) conduct an onsite review of the underwriting and claims processing operations of the MGA.
(d) Binding authority for all reinsurance contracts or participation in insurance or reinsurance syndicates shall rest with an officer of the insurer, who shall not be affiliated with the MGA.
(e) Within 30 days of entering into or termination of a contract with an MGA, the insurer shall provide written notification of such appointment or termination to the commissioner. Notices of appointment of an MGA shall include a statement of duties which the applicant is expected to perform on behalf of the insurer, the lines of insurance for which the applicant is to be authorized to act, and any other information the commissioner may request.
(f) An insurer shall review its books and records each quarter to determine if any producer has become, by operation of Section 769.81, an MGA as defined in that section. If the insurer determines that a producer has become an MGA pursuant to the above, the insurer shall promptly notify the producer and the commissioner of that determination and the insurer and the producer shall fully comply with this article within 30 days.
(g) An insurer shall not appoint to its board of directors an officer, director, employee, any agent appointed pursuant to paragraph (3) of subdivision (j) of Section 769.83, or controlling shareholder of its MGAs. This subdivision shall not apply to relationships governed by Article 4.7 (commencing with Section 1215) of Chapter 2 of Part 2 of Division 1.
The acts of the MGA are considered to be the acts of the
insurer on whose behalf it is acting. An MGA may be examined as if it
were the insurer.
(a) If the commissioner finds after hearing that any person
has violated any provision of this article he or she may order any
of the following:
(1) For each separate violation, a penalty in an amount not to exceed twenty-five thousand dollars ($25,000).
(2) Revocation or suspension of the producer's license.
(b) Hearings held pursuant to subdivision (a) shall be conducted in accordance with Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, except that the hearings shall be conducted by administrative law judges chosen under Section 11502 or appointed by the commissioner.
(c) The decision, determination, or order of the commissioner pursuant to subdivision (a) shall be subject to judicial review.
(d) Nothing contained in this section shall affect the right of the commissioner to impose any other penalties provided for in this code, nor limit any other authority required or authorized by this code to be exercised by the commissioner.
(e) Nothing contained in this article is intended to or shall in any manner limit or restrict the rights of policyholders, claimants, and auditors.
(1) For each separate violation, a penalty in an amount not to exceed twenty-five thousand dollars ($25,000).
(2) Revocation or suspension of the producer's license.
(b) Hearings held pursuant to subdivision (a) shall be conducted in accordance with Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, except that the hearings shall be conducted by administrative law judges chosen under Section 11502 or appointed by the commissioner.
(c) The decision, determination, or order of the commissioner pursuant to subdivision (a) shall be subject to judicial review.
(d) Nothing contained in this section shall affect the right of the commissioner to impose any other penalties provided for in this code, nor limit any other authority required or authorized by this code to be exercised by the commissioner.
(e) Nothing contained in this article is intended to or shall in any manner limit or restrict the rights of policyholders, claimants, and auditors.
The commissioner may adopt reasonable rules and regulations
for the implementation and administration of this article.
