This chapter may be cited as the Alabama Reinsurance Intermediary Act.
(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 the reinsurance intermediary in a form usable to the commissioner.
(b) A reinsurance intermediary-manager may be examined as if it were the reinsurer.
(a) A reinsurance intermediary, insurer, or reinsurer found by the commissioner, after a hearing conducted in accordance with Section 27-2-28, to be in violation of this chapter, shall:
(1) For each separate violation, pay a penalty in an amount not exceeding $5,000.
(2) Be subject to revocation or suspension of its license.
(3) If a violation was committed by the reinsurance intermediary, the 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 Section 27-2-32.
(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 chapter 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 those persons.
The commissioner may adopt reasonable rules and regulations for the implementation and administration of the provisions of this chapter.
No insurer or reinsurer may continue to utilize the services of a reinsurance intermediary on and after May 17, 1993 unless utilization is in compliance with this chapter.
As used in this chapter, the following terms shall have the following meanings, respectively, unless the context clearly indicates otherwise:
(1) ACTUARY. A person who is a member in good standing of the American Academy of Actuaries.
(2) COMMISSIONER. The Alabama Commissioner of Insurance.
(3) CONTROLLING PERSON. 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 the reinsurance intermediary.
(4) INSURER. Any person, firm, association, or corporation duly licensed in this state pursuant to the applicable provisions of the insurance law as an insurer.
(5) LICENSED PRODUCER. An insurance producer or reinsurance intermediary licensed pursuant to the applicable provision of the insurance law.
(6) QUALIFIED U.S. FINANCIAL INSTITUTION. An institution that:
a. Is organized or, in the case of a U.S. office of a foreign banking organization, licensed, pursuant to the laws of the United States or any state.
b. Is regulated, supervised, and examined by federal or state authorities having regulatory authority over banks and trust companies.
c. Has been determined by either the commissioner, or the Securities Valuation Office of the National Association of Insurance Commissioners, to meet the 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.
(7) REINSURANCE INTERMEDIARY. A reinsurance intermediary-broker or a reinsurance intermediary-manager as these terms are defined in subdivisions (8) and (9).
(8) REINSURANCE INTERMEDIARY-BROKER. Any person, other than an officer or employee of the ceding insurer, firm, association, or corporation who 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 such insurer.
(9) REINSURANCE INTERMEDIARY-MANAGER. Any person, firm, association, or corporation who 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 such reinsurer whether known as a reinsurance intermediary-manager, manager, or other similar term. Notwithstanding the above, the following persons shall not be considered a reinsurance intermediary-manager, with respect to such reinsurer, for the purposes of this chapter:
a. An employee of the reinsurer.
b. A U.S. manager of the United States branch of an alien reinsurer.
c. An underwriting manager which, pursuant to contract, manages all or part of the reinsurance operations of the reinsurer, is under common control with the reinsurer, subject to Chapter 29 of this title, and whose compensation is not based on the volume of premiums written.
d. The manager of a group, association, pool, or organization of insurers which engages in joint underwriting or joint reinsurance, but only if the group, association, pool, or organization of insurers, as distinguished from its members, is subject to examination by the Commissioner of Insurance of the state in which the manager's principal business office is located.
(10) REINSURER. Any person, firm, association, or corporation duly licensed in this state pursuant to the applicable provisions of the insurance law as an insurer with the authority to assume reinsurance.
(11) TO BE IN VIOLATION. The reinsurance intermediary, insurer, or reinsurer for whom the reinsurance intermediary was acting failed to substantially comply with the provisions of this chapter.
(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 an officer, director, or employee of a corporation:
(1) In this state, unless the reinsurance intermediary-broker is a licensed producer in this state.
(2) In another state, unless the reinsurance intermediary-broker is a licensed producer in this state or another state having a law substantially similar to this law or the 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 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 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 insurer, unless the reinsurance intermediary-manager is a licensed producer in this state or another state having a law substantially similar to this law or the person is licensed in this state as a nonresident reinsurance intermediary.
(c) The commissioner may require a reinsurance intermediary-manager subject to subsection (b) to:
(1) File a bond in an amount from an insurer acceptable to 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 who has complied with the requirements of this chapter. Any license issued to a firm or association shall authorize all the members of the firm or association and any designated employees to act as reinsurance intermediaries pursuant to the license, and all the persons shall be named in the application and any supplements to the application. Any license issued to a corporation shall authorize all of the officers, and any designated employees and directors of the corporation to act as reinsurance intermediaries on behalf of the corporation, and all the persons shall be named in the application and any supplements thereto.
(2) If the applicant for a reinsurance intermediary license is a nonresident, the 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 chapter 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. A licensee shall promptly notify the commissioner in writing of every change in its designated agent for service of process, and any change shall not become effective until acknowledged by the commissioner.
(e) The commissioner may refuse to issue a reinsurance intermediary license if, in his judgment, the applicant, any one named on the application, or any member, principal, officer, or director of the applicant, is not 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 such license, or has failed to comply with any prerequisite for the issuance of the license. Upon a refusal, the commissioner shall promptly give written notice to the applicant that the license is refused, stating the reasons for the refusal.
(f) Licensed attorneys at law of this state, when acting in their professional capacity, shall be exempt from this section.
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, provide that:
(1) The insurer may terminate the reinsurance intermediary-broker's authority at any time.
(2) 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.
(3) All funds collected for the insurer's account shall be held by the reinsurance intermediary-broker in a fiduciary capacity in a bank which is a qualified U.S. financial institution as defined herein.
(4) The reinsurance intermediary-broker shall comply with Section 27-5A-5.
(5) The reinsurance intermediary-broker shall comply with the written standards established by the insurer for the cession or retrocession of all risks.
(6) The reinsurance intermediary-broker shall disclose to the insurer any relationship with any reinsurer to which business will be ceded or retroceded.
(a) For at least 10 years after expiration of each contract of reinsurance transacted by the reinsurance intermediary-broker, the reinsurance intermediary-broker 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) Period of coverage, including effective and expiration dates, cancellation provisions, and notice required of cancellation.
(3) Reporting and settlement requirements of balances.
(4) Rate used to compute the reinsurance premium.
(5) Names and addresses of assuming reinsurers.
(6) 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.
(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.
b. If placed through a representative of the assuming reinsurer, other than an employee, 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.
(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 subsection (a) of Section 27-5A-3.
(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 Chapter 29, Title 27.
(c) The insurer shall annually obtain a copy of statements of the financial condition of each reinsurance intermediary-broker with which it transacts business.
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 reinsurer's board of directors. At least 30 days before a reinsurer assumes or cedes business through a producer, a true copy of the approved contract shall be filed with the commissioner for approval. The contract shall, at a minimum, provide that:
(1) The reinsurer may terminate the contract for cause upon written notice to the reinsurance intermediary-manager. 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 shall 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) All funds collected for the reinsurer's account shall be held by the reinsurance intermediary-manager in a fiduciary capacity in a bank which is a qualified U.S. financial institution as defined herein. The reinsurance intermediary-manager may retain no more than three months estimated claims payments and allocated loss adjustment expenses. The reinsurance intermediary-manager shall maintain a separate bank account for each reinsurer that it represents.
(4) 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:
a. The type of contract, limits, underwriting restrictions, classes, or risks and territory.
b. Period of coverage, including effective and expiration dates, cancellation provisions, and notice required of cancellation, and disposition of outstanding reserves on covered risks.
c. Reporting and settlement requirements of balances.
d. Rate used to compute the reinsurance premium.
e. Names and addresses of reinsurers.
f. 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 subsection (d) of Section 27-5A-9, 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.
k. When the reinsurance intermediary-manager places a reinsurance contract on behalf of a ceding insurer:
1. Directly from any assuming reinsurer, written evidence that the assuming reinsurer has agreed to assume the risk.
2. If placed through a representative of the assuming reinsurer, other than an employee, written evidence that the reinsurer has delegated binding authority to the representative.
(5) 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.
(6) The contract cannot be assigned in whole or in part by the reinsurance intermediary-manager.
(7) 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.
(8) Sets 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 shall be reported to the reinsurer in a timely manner.
b. A copy of the claim file shall be sent to the reinsurer at its request or as soon as it becomes known that the claim:
1. Has the potential to exceed the lesser of an amount determined by the commissioner or the limit set by the reinsurer.
2. Involves a coverage dispute.
3. May exceed the reinsurance intermediary-manager's claims settlement authority.
4. Is open for more than six months.
5. 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 shall be the joint property of the reinsurer and reinsurance intermediary-manager. However, upon an order of liquidation of the reinsurer, the 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 the 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 subsection (c) of Section 27-5A-9.
(11) The reinsurance intermediary-manager shall annually provide the reinsurer with a statement of its financial condition prepared by an independent certified accountant.
(12) The reinsurer shall periodically (at least semiannually) conduct an on-site review of the underwriting and claims processing operations of the reinsurance intermediary-manager.
(13) The reinsurance intermediary-manager shall 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.
(14) 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.
The reinsurance intermediary-manager shall not:
(1) Cede retrocessions on behalf of the reinsurer, except that the reinsurance intermediary-manager may cede facultative retrocessions pursuant to obligatory facultative agreements if the contract with the reinsurer contains reinsurance underwriting guidelines for such retrocessions. The guidelines shall include a list of reinsurers with which any 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 the producer 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 percent of the reinsurer's policyholder's surplus as of December 31 of the last complete calendar year.
(5) 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 shall be promptly forwarded to the reinsurer.
(6) Jointly employ an individual who is employed by the reinsurer unless such reinsurance intermediary-manager is under common control with the reinsurer subject to the Chapter 29, Title 27.
(7) Appoint a sub-reinsurance intermediary-manager.
(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 subsection (b) of Section 27-5A-3.
(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) 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. 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 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) A reinsurer shall not appoint to its board of directors, any officer, director, employee, controlling shareholder, or subproducer of its reinsurance intermediary-manager. This subsection shall not apply to relationships governed by Chapter 29, Title 27.
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