Sections 27-6A-2 through 27-6A-8, inclusive, of this chapter may be cited as the 'Alabama Managing General Agents Act.'
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) INSURER. A person defined in subdivisions (2) and (3) of Section 27-1-2.
(3) MANAGING GENERAL AGENT. Any person, firm, or association who does both of the following:
a. Manages all or part of the insurance business of an insurer, including the management of a separate division, department, or underwriting office.
b. Acts as a producer for an insurer whether known as a managing general agent, 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 five 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 activities related to the business produced:
1. Adjusts or pays claims in excess of an amount determined by the commissioner.
2. Negotiates reinsurance on behalf of the insurer.
c. Notwithstanding the above, the following persons shall not be considered as managing general agents for the purposes of this chapter:
1. An employee of the insurer.
2. A United States manager of the United States branch of an alien insurer.
3. An underwriting manager who, pursuant to contract, manages all or part of the insurance operations of the insurer, is under common control with the insurer, subject to the Alabama Insurance Holding Company System Regulatory Act, Chapter 29, commencing with Section 27-29-1, of this title, 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 inter-insurance exchange under powers of attorney.
(4) POLICYHOLDER SURPLUS. The excess of assets over liabilities.
(5) UNDERWRITE. The authority to accept or reject risk on behalf of the insurer.
(a) No person, firm, association, or corporation shall act in the capacity of a managing general agent with respect to risks located in this state for an insurer licensed in this state unless then licensed in this state as a managing general agent of the insurer.
(b) No person, firm, association, or corporation shall act in the capacity of a managing general agent representing an insurer domiciled in this state with respect to risks located outside this state unless then licensed in this state as a managing general agent of the insurer. Where applicable, the license may be a nonresident license pursuant to this chapter.
(c) The commissioner may require the managing general agent to maintain a bond in an amount acceptable to the commissioner for the protection of the insurer.
(d) The commissioner may require the managing general agent to maintain an errors and omissions policy.
No person, firm, association, or corporation acting in the capacity of a managing general agent shall place business with an insurer unless there is in force a written contract between the parties that sets forth the responsibilities of each party and where both parties share responsibility for a particular function, specifies the division of such responsibilities, and that contains the following minimum provisions:
(a) The insurer may terminate the contract for cause upon written notice to the managing general agent. The insurer may suspend the underwriting authority of the managing general agent during the pendency of any dispute regarding the cause for termination.
(b) The managing general agent 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 will be held by the managing general agent in a fiduciary capacity in a bank that is a member of the Federal Reserve System. This account shall be used for all payments on behalf of the insurer. The managing general agent may retain no more than three months estimated claims payments and allocated loss adjustment expenses.
(d) Separate records of business written by the managing general agent shall be maintained. The insurer shall have access and 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 managing general agent in a form usable to the commissioner. The records shall be retained according to Section 27-7-33.
(e) The contract may not be assigned in whole or in part by the managing general agent.
(f) The contract shall contain appropriate underwriting guidelines including the following:
(1) The maximum annual premium volume.
(2) The basis of the rates to be charged.
(3) The types of risks that may be written.
(4) Maximum limits of liability.
(5) Applicable exclusions.
(6) Territorial limitations.
(7) Policy cancellation provisions.
(8) The maximum policy period.
(g) The insurer shall have the right to cancellation or non-renewal of any policy of insurance subject to the applicable laws and regulations concerning the cancellation and non-renewal of insurance policies.
(h) If the contract permits the managing general agent to settle claims on behalf of the insurer:
(1) All claims shall be reported to the company 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 to the managing general agent that the claim:
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 managing general agent's claims settlement authority.
d. Has been open for more than six months.
e. Is closed by payment of an amount set by the commissioner or an amount set by the company, whichever is less.
(3) All claim files shall be the joint property of the insurer and managing general agent. Upon an order of liquidation of the insurer, the files shall become the sole property of the insurer or its estate. The managing general agent shall have reasonable access to and the right to copy the files on a timely basis.
(4) Any settlement authority granted to the managing general agent may be terminated for cause upon the insurer's written notice to the managing general agent 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.
(i) Where electronic claims files are in existence, the contract shall address the timely transmission of the data.
(j) If the contract provides for a sharing of interim profits by the managing general agent, and the managing general agent 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 shall not be paid to the managing general agent 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 27-6A-5.
(k) The managing general agent shall not:
(1) Bind reinsurance or retrocessions on behalf of the insurer, except that the managing general agent 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.
(2) Commit the insurer to participate in insurance or reinsurance syndicates.
(3) Appoint any producer without assuring that the producer 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 one 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 its subagent to serve on the insurer's board of directors.
(7) Jointly employ an individual who is employed by the insurer.
(8) Appoint a sub-managing general agent.
Insurers shall have the following duties:
(1) The insurer shall have on file an independent financial examination, in a form acceptable to the commissioner, of each managing general agent with which it has done business.
(2) If a managing general agent 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 managing general agent. This is in addition to any other required loss reserve certification.
(3) The insurer shall periodically, and at least semi-annually, conduct an onsite review of the underwriting and claims processing operations of the managing general agent.
(4) Binding authority for all reinsurance contracts or participation in insurance or reinsurance syndicate shall rest with an officer of the insurer, who shall not be affiliated with the managing general agent.
(5) Within 30 days of entering into or terminating a contract with a managing general agent, the insurer shall provide written notification of the appointment or termination to the commissioner. Notices of appointment of a managing general agent 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.
(6) An insurer shall review its books and records each quarter to determine if any producer has become, by operation of subdivision (3) of Section 27-6A-2, a managing general agent as defined in that section. If the insurer determines that a producer has become a managing general agent, the insurer shall promptly notify the producer and the commissioner of the determination and the insurer and the producer shall fully comply with the provisions of this chapter within 30 days of the notification.
(7) An insurer shall not appoint to its board of directors an officer, director, employee, subagent, or controlling shareholder of its managing general agents. This subsection shall not apply to relationships governed by the Alabama Insurance Holding Company System Regulatory Act, Chapter 29, commencing with Section 27-29-1, of this title.
The acts of the managing general agent are considered to be the acts of the insurer on whose behalf it is acting. A managing general agent may be examined as if it were the insurer.
(a) If the commissioner finds after a hearing conducted in accordance with Section 27-2-28, that any person has violated this chapter, the commissioner may order:
(1) For each separate violation, a penalty in an amount of up to $5,000.
(2) Revocation or suspension of the managing general agent's license.
(3) The managing general agent to reimburse the insurer, the rehabilitator, or liquidator of the insurer for any losses incurred by the insurer caused by a violation of this chapter committed by the managing general agent.
(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 27-2-31.
(c) No provision of this section shall affect the right of the commissioner to impose any other penalties provided for in the insurance law, rule, or regulation.
(d) No provision of this chapter is intended to or shall in any manner limit or restrict the rights of policyholders, claimants, and auditors.
No insurer may continue to use the services of a managing general agent after midnight December 31, 1993, unless the insurer is in compliance with this chapter.
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