PRIOR PRINTER'S NO. 1966 PRINTER'S NO. 3224
No. 1669 Session of 1991
INTRODUCED BY MURPHY, FREIND, JOSEPHS, TANGRETTI, HAYDEN,
MAIALE, VAN HORNE, MICHLOVIC, CARN, BUTKOVITZ, McNALLY,
ULIANA, GLADECK, LaGROTTA, VEON, MELIO, COLAIZZO, GANNON,
GODSHALL, WAMBACH, JAMES, DURHAM, VROON, DEMPSEY, KOSINSKI,
BOWLEY, KUKOVICH, TRELLO, STURLA, BUSH, HECKLER, DeLUCA,
RICHARDSON AND PISTELLA, JUNE 12, 1991
AS REPORTED FROM COMMITTEE ON INSURANCE, HOUSE OF
REPRESENTATIVES, AS AMENDED, MARCH 11, 1992
AN ACT
1 Amending the act of May 17, 1921 (P.L.789, No.285), entitled, as
2 amended, "An act relating to insurance; establishing an
3 insurance department; and amending, revising, and
4 consolidating the law relating to the licensing,
5 qualification, regulation, examination, suspension, and
6 dissolution of insurance companies, Lloyds associations,
7 reciprocal and inter-insurance exchanges, and certain
8 societies and orders, the examination and regulation of fire
9 insurance rating bureaus, and the licensing and regulation of
10 insurance agents and brokers; the service of legal process
11 upon foreign insurance companies, associations or exchanges;
12 providing penalties, and repealing existing laws," further
13 providing for certificates of authority, for the computation
14 of certain reserves, for the powers and duties of the
15 Insurance Commissioner and the Insurance Department; adding
16 provisions relating to reinsurance intermediaries, managing
17 general agents and the examination of insurers; further
18 providing for enforcement and penalties; making repeals; and
19 making an editorial change.
20 The General Assembly of the Commonwealth of Pennsylvania
21 hereby enacts as follows:
22 Section 1. Section 102 of the act of May 17, 1921 (P.L.789,
23 No.285), known as The Insurance Department Act of one thousand
24 nine hundred and twenty-one, is amended to read:
1 Section 102. Short Title.--This act shall be known and may
2 be cited as "The Insurance Department Act of [one thousand nine
3 hundred and twenty-one] 1921."
4 Section 2. Section 208(c) of the act, amended July 31, 1968
5 (P.L.763, No.239), is amended to read:
6 Section 208. Certificates of Authority To Do Business.--* *
7 *
8 (c) (1) Whenever the commissioner believes, from evidence
9 satisfactory to him, that any insurance company, association, or
10 exchange is doing an insurance business within this Commonwealth
11 in violation of any provision of this act or any order or
12 requirement of the commissioner issued or promulgated pursuant
13 to authority expressly granted the commissioner by any provision
14 of this act or by law, or is about to violate any such
15 provision, order, or requirement, the commissioner may, [after
16 approval by the Attorney General, bring an action in the Court
17 of Common Pleas of Dauphin County against such company,
18 association, or exchange to enjoin such company, association, or
19 exchange from continuing such violation or engaging therein or
20 doing any act in furtherance thereof. In such action an order or
21 judgment may be entered awarding such preliminary or final
22 injunction as is proper.] in his discretion, take against the
23 offending party or parties any one or more of the following
24 courses of action:
25 (i) Revoke the certificate of authority of such offending
26 company, association or exchange.
27 (ii) Refuse to renew the certificate of authority of such
28 offending company, association or exchange.
29 This remedy is in addition to any other remedy provided by this
30 act or by law.
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1 (2) Before the Insurance Commissioner shall take any action
2 as set forth in paragraph (1), he shall give written notice to
3 the person, company, association or exchange accused of
4 violating the laws, stating specifically the nature of such
5 alleged violation and fixing a time and place, at least ten days
6 thereafter, when a hearing before the Insurance Commissioner
7 regarding the matter shall be held.
8 * * *
9 Section 3. The act is amended by adding a section to read:
10 Section 223. Jurisdiction Over Providers of Health Care
11 Benefits.--(a) Notwithstanding any other provision of law, and
12 except as provided in this section, any person or other entity
13 which provides benefits in this Commonwealth for medical,
14 surgical, chiropractic, physical therapy, speech pathology,
15 audiology, professional mental health, dental, hospital or
16 optometric expenses, whether the benefits are provided by direct
17 payment, reimbursement or otherwise, shall comply with the
18 requirements of section 208 of this act, unless the person or
19 other entity shows that, while providing those services, it is
20 subject to the jurisdiction of another agency of the
21 Commonwealth, any subdivisions thereof, or the Federal
22 Government with respect to financial solvency.
23 (b) A person or entity may show that it is subject to the
24 jurisdiction of another agency of the Commonwealth, or any
25 subdivision thereof, or of the Federal Government, by providing
26 to the Insurance Commissioner the appropriate certificate,
27 license or other document issued by the other governmental
28 agency which permits or qualifies it to provide those services.
29 Such certificate, license or other document may constitute
30 evidence that a person or entity is subject to the jurisdiction
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1 of another agency of the Commonwealth, or any subdivision
2 thereof, or of the Federal Government, but such evidence is
3 subject to rebuttal. A Department of Labor letter concerning an
4 entity's purported status under the Employee Retirement Income
5 Security Act of 1974 (Public Law 93-406, 29 U.S.C. § 1001 et
6 seq.) is not a certificate, license or other document, within
7 the meaning of this section which permits or qualifies an entity
8 to provide services.
9 (c) Any person or entity which is unable to show under
10 subsection (b) that it is subject to the jurisdiction of another
11 agency of the Commonwealth or any subdivision thereof, or the
12 Federal Government, shall submit to an examination by the
13 Insurance Commissioner to determine the organization and
14 solvency of the person or the entity, and to determine whether
15 or not such person or entity complies with the applicable
16 provisions of law. The person or entity examined shall be
17 responsible for the Insurance Department's examination expenses
18 to the same extent as a licensed insurance company would be
19 responsible, if the person or entity is found to be subject to
20 the requirements of section 208 of this act.
21 (d) Any person or entity unable to show that it is subject
22 to the jurisdiction of another agency of the Commonwealth, or
23 any subdivision thereof, or of the Federal Government, shall be
24 subject to all appropriate provisions of law regarding the
25 conduct of its business.
26 (e) Any person, entity, agent or administrator which
27 advertises, sells, transacts or administers in this Commonwealth
28 the benefits described in subsection (a), and which is required
29 to submit to an examination by the Insurance Commissioner under
30 subsection (c), shall, if said benefits are not fully insured or
19910H1669B3224 - 4 -
1 otherwise fully covered by any insurer licensed to do the
2 business of insurance in this Commonwealth, nonprofit hospital
3 service plan or nonprofit health care plan, give notice to every
4 purchaser, prospective purchaser and covered person of such lack
5 of insurance or other coverage and lack of State insurance
6 insolvency guaranty funds protection.
7 (f) Any administrator which advertises or administers in
8 this Commonwealth the benefits described in subsection (a), and
9 which is required to submit to an examination by the Insurance
10 Commissioner under subsection (c), shall give notice to any
11 person or agent, as described in subsection (e), of the elements
12 of the coverage, including, but not limited to, the amount of
13 "stop-loss" insurance in effect and lack of State insurance
14 insolvency guaranty funds protection.
15 (g) The notice described in subsections (e) and (f) shall be
16 in ten-point type on any solicitation, application, description
17 of benefits, renewal form or any other form provided to any
18 person covered by a person or entity described in subsection
19 (a).
20 (h) Upon satisfactory evidence of the violation of any of
21 the provisions of this section, the Insurance Commissioner may,
22 in his discretion, pursue any one or more of the following
23 courses of action, regardless of whether such person, entity,
24 agent, solicitor, broker or company is licensed or not licensed
25 by the Insurance Commissioner:
26 (1) Suspend or revoke or refuse to renew the license of
27 such offending party or parties.
28 (2) Impose a civil penalty of not more than $1,000 for
29 each and every act in violation of any of said sections by
30 said party or parties.
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1 Section 4. Section 301.1(a) of the act, amended June 23,
2 1976 (P.L.403, No.90), is amended to read:
3 Section 301.1. Computation of Reserve Liability; Health and
4 Accident Insurance.--(a) The Insurance Commissioner shall each
5 year value or cause to be valued, or shall annually require the
6 insurer to value or cause to be valued, the reserve liabilities,
7 as of the thirty-first day of December of the preceding year, of
8 every life insurance company doing business in this
9 Commonwealth, with respect to all of its health and accident
10 insurance policies. For all such policies, the company shall
11 maintain a claim reserve for incurred but unpaid claims and an
12 active life reserve which shall place a sound value on its
13 liabilities [under such policies] and be not less than the
14 reserve according to appropriate standards set forth in
15 regulations issued by the Insurance Commissioner [and, in]. In
16 no event, shall the active life reserve be less in the aggregate
17 than the pro rata gross unearned premiums for such policies.
18 * * *
19 Section 5. Section 311 of the act, amended May 20, 1949
20 (P.L.1498, No.449), is amended to read:
21 Section 311. Computation of Reserve Against Unpaid Losses in
22 Casualty Insurance Other Than Non-Cancellable Health and
23 Accident Insurance.--The Insurance Commissioner shall, in
24 calculating the reserve against unpaid losses of [casualty
25 insurance companies, other than losses under] any insurance
26 company, other than life insurance companies, for losses other
27 than under noncancellable health and accident insurance issued
28 on and after January first, one thousand nine hundred fifty,
29 [liability and workmen's compensation policies,] set down, by
30 careful estimate in each case, the loss likely to be incurred
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1 against every claim presented or that may be presented in
2 pursuance of notice from the insured of the occurrence of an
3 event that may result in a loss. The sum of the items so
4 estimated shall be the total amount of the reserve, except that,
5 in credit insurance, fifty per centum of the premiums on all
6 credit policies expiring in the months of October, November, and
7 December of the current year, less the amount of losses paid on
8 such policies, shall, in addition thereto, be charged in the
9 loss reserve.
10 Section 6. Section 311.1(a) of the act, amended June 23,
11 1976 (P.L.403, No.90), is amended to read:
12 Section 311.1. Computation of Reserve Liability; Health and
13 Accident Insurance.--(a) The Insurance Commissioner shall each
14 year value or cause to be valued, or shall annually require the
15 insurer to value or cause to be valued, the reserve liabilities,
16 as of the thirty-first day of December of the preceding year, of
17 every casualty insurance company doing business in this
18 Commonwealth, with respect to all of its health and accident
19 insurance policies. For all such policies the company shall
20 maintain a claim reserve for incurred but unpaid claims and an
21 active life reserve which shall place a sound value on its
22 liabilities [under such policies] and be not less than the
23 reserve according to appropriate standards set forth in
24 [regulation] regulations issued by the Insurance Commissioner
25 [and, in]. In no event, shall the active life reserve be less in
26 the aggregate than the pro rata gross unearned premiums for such
27 policies.
28 * * *
29 Section 7. Section 313 of the act, amended December 19, 1975
30 (P.L.571, No.163), is amended to read:
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1 Section 313. Computation of Reserve.--[The reserve required
2 of stock and mutual insurance companies and exchanges for
3 outstanding losses under insurance against loss or damage from
4 accident to, or injuries suffered by, an employe or other
5 person, and for which the insured is liable, shall be computed
6 as follows:
7 (b) For all liability premiums earned during the three years
8 immediately preceding the date as of which the statement is
9 made, such reserve shall be sixty per centum of the earned
10 liability premiums of each of such three years, less all loss
11 and loss expense payments made under liability policies written
12 in the corresponding years.
13 (c) For all compensation claims under policies written more
14 than three years prior to the date as of which the statement is
15 made, the present value, at four per centum interest, of the
16 determined and estimated future payments.
17 (d) For all compensation premiums earned in the three years
18 immediately preceding the date as of which the statement is
19 made, such reserve shall be sixty-five per centum of the earned
20 compensation premiums of each of such three years, less all loss
21 and loss expense payments made in connection with such claims
22 under policies written in the corresponding years, but, in any
23 event, such reserve shall be not less than the present value, at
24 four per centum interest, of the determined and the estimated
25 unpaid compensation claims under policies written during each of
26 such years.] In addition to the reserves required by section
27 311, any insurance company, other than life insurance companies,
28 is required to establish statutory reserves for those lines of
29 insurance reported in schedule "P" of the Annual Statement
30 Blank, as adopted for use in Pennsylvania by the commissioner,
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1 in accordance with the instructions for calculation of such
2 statutory reserves as published by a national association of <--
3 insurance commissioners. THE NATIONAL ASSOCIATION OF INSURANCE <--
4 COMMISSIONERS.
5 Section 8. Sections 314 and 315 of the act are repealed.
6 Section 9. Section 316 of the act is amended to read:
7 Section 316. Power of Insurance Commissioner To Fix Amount
8 of Reserves.--Whenever, in the judgment of the Insurance
9 Commissioner, the [liability or compensation] loss reserves of
10 any insurer under his supervision, calculated in accordance with
11 the foregoing provisions, are inadequate, he may, in his
12 discretion, require such insurer to maintain additional reserves
13 based upon estimated individual claims or otherwise; or whenever
14 a satisfactory mathematical or actuarial table for valuing
15 compensation loss reserves is promulgated and approved by the
16 Insurance Commissioner, he may require any insurer under his
17 supervision to maintain, upon such tabular basis, greater or
18 lesser reserves than those hereinbefore provided for.
19 Section 10. Section 660 of the act, added December 3, 1975
20 (P.L.469, No.136), is amended to read:
21 Section 660. Action for Injunction or Other Process
22 Authorized.--(a) The Insurance Commissioner or a duly
23 designated deputy, upon advice of the Attorney General, may
24 maintain as hereinafter provided an action in the name of the
25 Commonwealth for an injunction or other process against any
26 person, partnership, copartnership, association, company,
27 corporation or other entity to restrain and prevent any of the
28 foregoing from transacting business as an agent or solicitor of
29 any insurance company, association or exchange or as an
30 insurance broker or as a manager or exclusive general agent of a
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1 domestic insurance company, association or exchange without a
2 license whenever a license to engage in aforementioned
3 activities is required by law and such licenses are issued by
4 the Insurance Commissioner.
5 (b) The action described in subsection (a) may also be
6 brought to restrain or prevent unlicensed activity as a
7 reinsurance intermediary in violation of Article VII or as a
8 managing general agent under Article VIII.
9 Section 11. Article VII of the act is repealed.
10 Section 12. The act is amended by adding articles to read:
11 ARTICLE VII.
12 REINSURANCE INTERMEDIARIES.
13 Section 701. Definitions.--The following words and phrases
14 when used in this article shall have, unless the context clearly
15 indicates otherwise, the meanings given to them in this section:
16 "Actuary" means an individual who has demonstrated to the <--
17 satisfaction of the Insurance Department that the individual has
18 the educational background necessary for the practice of
19 actuarial science. IS A MEMBER IN GOOD STANDING OF THE AMERICAN <--
20 ACADEMY OF ACTUARIES.
21 "Commissioner" means the Insurance Commissioner of the
22 Commonwealth.
23 "Controlling person" means any person, firm, association or
24 corporation who directly or indirectly has the power to direct
25 or cause to be directed, the management, control or activities
26 of the reinsurance intermediary.
27 "Department" means the Insurance Department of the
28 Commonwealth.
29 "Insurer" means any person, firm, association or corporation
30 duly licensed in this Commonwealth pursuant to the applicable
19910H1669B3224 - 10 -
1 provisions of the insurance law of the Commonwealth as an
2 insurer.
3 "Licensed producer" means an agent, broker or reinsurance
4 intermediary licensed pursuant to the applicable provisions of
5 the insurance laws of the Commonwealth.
6 "Reinsurance intermediary" means a reinsurance intermediary-
7 broker or a reinsurance intermediary-manager as these terms are
8 defined in this section.
9 "Reinsurance intermediary-broker" or "RB" means any person,
10 other than an officer or employe of the ceding insurer, firm,
11 association or corporation who solicits, negotiates or places
12 reinsurance cessions or retrocessions on behalf of a ceding
13 insurer without the authority or power to bind reinsurance on
14 behalf of such insurer.
15 "Reinsurance intermediary-manager" or "RM" means any person,
16 firm, association or corporation who has authority to bind or to
17 manage all or part of the assumed reinsurance business of a
18 reinsurer (including the management of a separate division,
19 department or underwriting office) and acts as an agent for such
20 reinsurer whether known as an RM, manager or other similar term.
21 Notwithstanding the above, the following persons shall not be
22 considered an RM, with respect to such reinsurer, for the
23 purposes of this article:
24 (1) An employe of the reinsurer.
25 (2) A United States manager of the United States branch of
26 an alien reinsurer.
27 (3) An underwriting manager which, pursuant to contract,
28 manages all the reinsurance operations of the reinsurer, is
29 under common control with the reinsurer, subject to Article XII
30 of the act of May 17, 1921 (P.L.682, No.284), known as "The
19910H1669B3224 - 11 -
1 Insurance Company Law of 1921," and whose compensation is not
2 based on the volume of premiums written.
3 (4) The manager of a group, association, pool or
4 organization of insurers which engage in joint underwriting or
5 joint reinsurance and who are subject to examination by the
6 Insurance Commissioner of the state in which the manager's
7 principal business office is located.
8 "Reinsurer" means any person, firm, association or
9 corporation duly licensed in this Commonwealth pursuant to the
10 applicable provisions of the insurance laws of the Commonwealth
11 as an insurer with the authority to assume reinsurance.
12 "Retrocession" means the transaction whereby a reinsurer <--
13 cedes all or part of the reinsurance it has assumed to another
14 reinsurer.
15 "Qualified United States financial institution" means an
16 institution that meets all of the following:
17 (1) Is organized or (in the case of a United States office
18 of a foreign banking organization) licensed, under the laws of
19 the United States or any state thereof.
20 (2) Is regulated, supervised and examined by United States
21 Federal or state authorities having regulatory authority over
22 banks and trust companies.
23 (3) Has been determined by either the commissioner or the
24 Securities Valuation Office of the National Association of
25 Insurance Commissioners, to meet such standards of financial
26 condition and standing as are considered necessary and
27 appropriate to regulate the quality of financial institutions
28 whose letters of credit will be acceptable to the commissioner.
29 "To be in violation" means that the reinsurance intermediary,
30 insurer or reinsurer for whom the reinsurance intermediary was
19910H1669B3224 - 12 -
1 acting failed to substantially comply with the provisions of
2 this article.
3 Section 702. Licensure.--(a) No person, firm, association
4 or corporation shall act as an RB in this Commonwealth if the RB
5 maintains an office either directly or as a member or employe of
6 a firm or association, or an officer director or employe of a
7 corporation:
8 (1) in this Commonwealth, unless the RB is a licensed
9 producer in this Commonwealth; or
10 (2) in another state, unless the RB is a licensed producer
11 in this Commonwealth or another state having a law substantially
12 similar to this article or the RB is licensed in this
13 Commonwealth as a nonresident reinsurance intermediary.
14 (b) No person, firm, association or corporation shall act as
15 an RM:
16 (1) For a reinsurer domiciled in this Commonwealth, unless
17 the RM is a licensed producer in this Commonwealth.
18 (2) In this Commonwealth, if the RM maintains an office
19 either directly or as a member or employe of a firm or
20 association, or an officer, director or employe of a corporation
21 in this Commonwealth, unless the RM is a licensed producer in
22 this Commonwealth.
23 (3) In another state for a nondomestic insurer unless the RM
24 is a licensed producer in this Commonwealth or another state
25 having a law substantially similar to this article or the person
26 is licensed in this Commonwealth as a nonresident reinsurance
27 intermediary.
28 (c) The department may require an RM subject to subsection
29 (b) to:
30 (1) file a bond in an amount from an insurer acceptable to
19910H1669B3224 - 13 -
1 the department for the protection of the reinsurer; and
2 (2) maintain an errors and omissions policy in an amount
3 acceptable to the department.
4 (d) The department may issue a reinsurance intermediary
5 license to any person, firm, association or corporation who has
6 complied with the requirement REQUIREMENTS of this article. Any <--
7 such license issued to a firm or association will authorize all
8 the members of such firm or association and any designated
9 employes to act as reinsurance intermediaries under the license,
10 and all such persons shall be named in the application and any
11 supplements thereto. Any such license issued to a corporation
12 shall authorize all of the officers, and any designated employes
13 and directors thereof to act as reinsurance intermediaries on
14 behalf of that corporation, and all such persons shall be named
15 in the application and any supplements thereto.
16 (e) The department may refuse to issue a reinsurance
17 intermediary license if in its judgment the applicant, anyone
18 named on the application, or any member, principal, officer or
19 director of the applicant is not trustworthy, or that any
20 controlling person of the applicant is not trustworthy to act as
21 a reinsurance intermediary, or that any of the foregoing has
22 given cause for revocation or suspension of a license or has
23 failed to comply with any prerequisite for the issuance of a
24 license. Upon written request therefor, the department shall
25 furnish a summary of the basis for refusal to issue a license,
26 which document shall be confidential and not subject to
27 disclosure to any other party by the department.
28 (f) Licensed attorneys at law of this Commonwealth when
29 acting in their professional capacity shall be exempt from this
30 section.
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1 Section 703. Required Contract Provisions for Reinsurance
2 Intermediary-brokers.--Transactions between an RB and the
3 insurer it represents in such capacity shall only be entered
4 into pursuant to a written authorization, specifying the
5 responsibilities of each party. The authorization shall, at a
6 minimum, contain provisions which provide as follows:
7 (1) The insurer may terminate the RB's authority at any
8 time.
9 (2) The RB will render accounts to the insurer accurately
10 detailing all material transactions, including information
11 necessary to support all commissions, charges and other fees
12 received by, or owing, to the RB and remit all funds due to the
13 insurer within thirty days of receipt.
14 (3) All funds collected for the insurer's account will be
15 held by the RB in a fiduciary capacity in a bank which is a
16 qualified United States financial institution.
17 (4) The RB will comply with section 704.
18 (5) The RB will comply with the written standards
19 established by the insurer for the cession or retrocession of
20 all risks.
21 (6) The RB will disclose to the insurer any relationship
22 with any reinsurer to which business will be ceded or
23 retroceded.
24 Section 704. Books and Records of Reinsurance Intermediary-
25 brokers.--(a) For at least three years after expiration of each
26 contract of reinsurance transacted by the RB with respect to
27 first party coverages and for at least ten years after
28 expiration of each contract of reinsurance transacted by the RB
29 with respect to all other coverages, the RB will keep a complete
30 record for each transaction showing all of the following:
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1 (1) The type of contract, limits, underwriting restrictions,
2 classes or risks and territory.
3 (2) Period of coverage, including effective and expiration
4 dates, cancellation provisions and notice required of
5 cancellation.
6 (3) Reporting and settlement requirements of balances.
7 (4) The rate used to compute the reinsurance premium.
8 (5) Names and addresses of assuming reinsurers.
9 (6) Rates of all reinsurance commissions, including the
10 commissions on any retrocessions handled by the RB.
11 (7) Related correspondence and memoranda.
12 (8) Proof of placement.
13 (9) Details regarding retrocessions handled by the RB
14 including the identity of retrocessionaires and percentage of
15 each contract assumed or ceded.
16 (10) Financial records, including but not limited to,
17 premium and loss accounts.
18 (11) When the RB procures a reinsurance contract on behalf
19 of a licensed ceding insurer:
20 (i) directly from any assuming reinsurer written evidence
21 that the assuming reinsurer has agreed to assume the risk; or
22 (ii) if placed through a representative of the assuming
23 reinsurer, other than an employe, written evidence that such
24 reinsurer has delegated binding authority to the representative.
25 (b) The insurer shall have access and the right to copy and
26 audit all accounts and records maintained by the RB related to
27 its business in a form usable by the insurer.
28 Section 705. Duties of Insurers Utilizing the Services of a
29 Reinsurance Intermediary-broker.--(a) An insurer shall not
30 engage the services of any person, firm, association or
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1 corporation to act as an RB on its behalf unless such person is
2 licensed as required by section 702(a).
3 (b) An insurer may not employ an individual who is employed
4 by an RB with which it transacts business, unless the RB is
5 under common control with the insurer and subject to Article XII
6 of the act of May 17, 1921 (P.L.682, No.284), known as "The
7 Insurance Company Law of 1921."
8 (c) The insurer shall annually obtain a copy of statements
9 of the financial condition of each RB with which it transacts
10 business.
11 Section 706. Required Contract Provisions for Reinsurance
12 Intermediary-managers.--Transactions between an RM and the
13 reinsurer it represents in such capacity shall only be entered
14 into pursuant to a written contract, specifying the
15 responsibilities of each party which shall be approved by the
16 reinsurer's board of directors. At least thirty days before such
17 reinsurer assumes or cedes business through such licensed
18 producer, a true copy of the approved contract shall be filed
19 with the department for approval. The contract shall, at a
20 minimum, contain the following provisions:
21 (1) The reinsurer may terminate the contract for cause upon
22 written notice to the RM. The reinsurer may suspend the
23 authority of the RM to assume or cede business during the
24 pendency of any dispute regarding the cause for termination.
25 (2) The RM will render accounts to the reinsurer accurately
26 detailing all material transactions, including information
27 necessary to support all commissions, charges and other fees
28 received by or owing to the RM, and remit all funds due under
29 the contract to the reinsurer on not less than a monthly basis.
30 (3) All funds collected for the reinsurer's account will be
19910H1669B3224 - 17 -
1 held by the RM in a fiduciary capacity in a bank which is a
2 qualified United States financial institution. The RM may retain
3 no more than three months estimated claims payments and
4 allocated loss adjustment expenses. The RM shall maintain a
5 separate bank account for each reinsurer that it represents.
6 (4) For at least three years after expiration of each
7 contract of reinsurance transacted by the RB RM with respect to <--
8 first party coverages and for at least ten years after
9 expiration of each contract of reinsurance transacted by the RB <--
10 RM with respect to all other coverages, the RB RM will keep a <--
11 complete record for each transaction showing all of the
12 following:
13 (i) The type of contract, limits, underwriting restrictions,
14 classes or risks and territory.
15 (ii) Period of coverage, including effective and expiration
16 dates, cancellation provisions and notice required of
17 cancellation, and disposition of outstanding reserves on covered
18 risks.
19 (iii) Reporting and settlement requirements of balances.
20 (iv) Rate used to compute the reinsurance premium.
21 (v) Names and addresses of reinsurers.
22 (vi) Rates of all reinsurance commissions, including the
23 commissions on any retrocessions handled by the RM.
24 (vii) Related correspondence and memoranda.
25 (viii) Proof of placement.
26 (ix) Details regarding retrocessions handled by the RM, as
27 permitted by section 708(d), including the identity of
28 retrocessionaires and percentage of each contract assumed or
29 ceded.
30 (x) Financial records including, but not limited to, premium
19910H1669B3224 - 18 -
1 and loss accounts.
2 (xi) When the RM places a reinsurance contract on behalf of
3 a ceding insurer:
4 (A) directly from any assuming reinsurer written evidence
5 that the assuming reinsurer has agreed to assume the risk; or
6 (B) if placed through a representative of the assuming
7 reinsurer, other than an employe, written evidence that such
8 reinsurer has delegated binding authority to the representative.
9 (5) The reinsurer will have access and the right to copy all
10 accounts and records maintained by the RM related to its
11 business in a form usable by the reinsurer.
12 (6) The contract cannot be assigned in whole or in part by
13 the RM.
14 (7) The RM will comply with the written underwriting and
15 rating standards established by the insurer for the acceptance,
16 rejection or cession of all risks.
17 (8) Provisions setting forth the rates, terms and purposes
18 of commissions, charges and other fees which the RM may levy
19 against the reinsurer.
20 (9) If the contract permits the RM to settle claims on
21 behalf of the reinsurer the following shall apply:
22 (i) All claims will be reported to the reinsurer in a timely
23 manner.
24 (ii) A copy of the claim file will be sent to the reinsurer
25 at its request or as soon as it becomes known that the claim:
26 (A) has the potential to exceed the lesser of an amount
27 determined by the commissioner or the limit set by the
28 reinsurer;
29 (B) involves a coverage dispute;
30 (C) may exceed the RM's claims settlement authority;
19910H1669B3224 - 19 -
1 (D) is open for more than six months; or
2 (E) is closed by payment of the lesser of an amount set by
3 the department or an amount set by the reinsurer.
4 (iii) All claim files will be the joint property of the
5 reinsurer and RM. However, upon an order of liquidation of the
6 reinsurer such files shall become the sole property of the
7 reinsurer or its estate; the RM shall have reasonable access to
8 and the right to copy the files on a timely basis.
9 (iv) Any settlement authority granted to the RM may be
10 terminated for cause upon the reinsurer's written notice to the
11 RM or upon the termination of the contract. The reinsurer may
12 suspend the settlement authority during the pendency of the
13 dispute regarding the cause of termination.
14 (10) If the contract provides for a sharing of interim
15 profits by the RM, that such interim profits will not be paid
16 until one year after the end of each underwriting period for
17 property business and five years after the end of each
18 underwriting period for casualty business (or a later period set
19 by the department for specified lines of insurance) and not
20 until the adequacy of reserves on remaining claims has been
21 verified pursuant to section 708(c).
22 (11) The RM will annually provide the reinsurer with a
23 statement of its financial condition prepared by an independent
24 certified accountant.
25 (12) The reinsurer shall periodically (at least semi-
26 annually) conduct an onsite review of the underwriting and
27 claims processing operations of the RM.
28 (13) The RM will disclose to the reinsurer any relationship
29 it has with any insurer prior to ceding or assuming any business
30 with such insurer pursuant to this contract.
19910H1669B3224 - 20 -
1 (14) The acts of the RM shall be deemed to be the acts of
2 the reinsurer on whose behalf it is acting.
3 Section 707. Prohibited Acts.--The RM shall not:
4 (1) Bind retrocessions on behalf of the reinsurer except
5 that the RM may bind facultative retrocessions pursuant to
6 obligatory facultative agreements if the contract with the
7 reinsurer contains reinsurance underwriting guidelines for such
8 retrocessions. Such guidelines shall include a list of
9 reinsurers with which such automatic agreements are in effect,
10 and for each such reinsurer, the coverages and amounts or
11 percentages that may be reinsured, and commission schedules.
12 (2) Commit the reinsurer to participate in reinsurance
13 syndicates.
14 (3) Appoint any producer without assuring that the producer
15 is lawfully licensed to transact the type of reinsurance for
16 which he is appointed.
17 (4) Without prior approval of the reinsurer, pay or commit
18 the reinsurer to pay a claim, net of retrocessions, that exceeds
19 the lesser of an amount specified by the reinsurer or one per
20 centum of the reinsurer's policyholder's surplus as of December
21 31 of the last complete calendar year.
22 (5) Collect any payment from a retrocessionaire or commit
23 the reinsurer to any claim settlement with a retrocessionaire,
24 without prior approval of the reinsurer. If prior approval is
25 given, a report must be promptly forwarded to the reinsurer.
26 (6) Jointly employ an individual who is employed by the
27 reinsurer.
28 (7) Appoint a sub-RM.
29 Section 708. Duties of Reinsurers Utilizing the Services of
30 a Reinsurance Intermediary-Manager.--(a) A reinsurer shall not
19910H1669B3224 - 21 -
1 engage the services of any person, firm, association or
2 corporation to act as an RM on its behalf unless such person is
3 licensed as required by section 702(b).
4 (b) The reinsurer shall annually obtain a copy of statements
5 of the financial condition of each RM which such reinsurer has
6 engaged prepared by an independent certified accountant in a
7 form acceptable to the department.
8 (c) If an RM establishes loss reserves, the reinsurer shall
9 annually obtain the opinion of an actuary attesting to the
10 adequacy of loss reserves established for losses incurred and
11 outstanding on business produced by the RM. This opinion shall
12 be in addition to any other required loss reserve certification.
13 (d) Binding authority for all retrocessional contracts or
14 participation in reinsurance syndicates shall rest with an
15 officer of the reinsurer who shall not be affiliated with the
16 RM.
17 (e) Within thirty days of termination of a contract with an
18 RM, the reinsurer shall provide written notification of such
19 termination to the department.
20 (f) A reinsurer shall not appoint to its board of directors
21 any officer, director, employe, controlling shareholder or
22 subproducer of its RM. This subsection shall not apply to
23 relationships governed by Articles XI or XII of the act of May
24 17, 1921 (P.L.682, No.284), known as "The Insurance Company Law
25 of 1921."
26 Section 709. Examination Authority.--(a) A reinsurance
27 intermediary shall be subject to examination by the department.
28 The department shall have access to all books, bank accounts and
29 records of the reinsurance intermediary in a form usable by the
30 department.
19910H1669B3224 - 22 -
1 (b) An RM may be examined as if it were the reinsurer.
2 Section 710. Penalties and Liability.--(a) A reinsurance
3 intermediary, insurer or reinsurer found by the commissioner,
4 after a hearing conducted in accordance with 2 Pa.C.S. (relating
5 to administrative law and procedure), to be in violation of any
6 provision of this article, shall:
7 (1) for each separate violation, pay a civil penalty in an
8 amount not exceeding five thousand dollars ($5,000);
9 (2) be subject to revocation or suspension of its license;
10 and
11 (3) if a violation was committed by the reinsurance
12 intermediary such reinsurance intermediary shall make
13 restitution to the insurer, reinsurer, rehabilitator or
14 liquidator of the insurer or reinsurer for the net losses
15 incurred by the insurer or reinsurer attributable to such
16 violation.
17 (b) The decision, determination or order of the commissioner
18 pursuant to subsection (a) shall be subject to judicial review
19 pursuant to 2 Pa.C.S.
20 (c) Nothing contained in this section shall affect the right
21 of the commissioner to impose any other penalties provided in
22 the insurance laws of the Commonwealth.
23 (d) Nothing contained in this article is intended to or
24 shall in any manner limit or restrict the rights of
25 policyholders, claimants, creditor or other third parties or
26 confer any rights to such persons.
27 ARTICLE VIII.
28 MANAGING GENERAL AGENTS.
29 Section 801. Definitions.--The following words and phrases
30 when used in this article shall have, unless the context clearly
19910H1669B3224 - 23 -
1 indicates otherwise, the meanings given to them in this section:
2 "Actuary" means an individual who has demonstrated to the <--
3 satisfaction of the Insurance Department that the individual has
4 the educational background necessary for the practice of
5 actuarial science. IS A MEMBER IN GOOD STANDING OF THE AMERICAN <--
6 ACADEMY OF ACTUARIES.
7 "Commissioner" means the Insurance Commissioner of the
8 Commonwealth.
9 "Department" means the Insurance Department of the
10 Commonwealth.
11 "Insurer" means any company, association or exchange
12 authorized by the Insurance Commissioner to transact the
13 business of insurance in this Commonwealth, except that it shall
14 not include agencies, authorities or instrumentalities of the
15 United States, its possessions and territories, the Commonwealth
16 of Puerto Rico, the District of Columbia, or a state or
17 political subdivision of a state.
18 "Managing general agent" or "MGA" means:
19 (1) Any person, firm, association or corporation who
20 negotiates and binds ceding reinsurance contracts on behalf of
21 an insurer or manages all or part of the insurance business of
22 an insurer (including the management of a separate division,
23 department or underwriting office) and acts as an agent for such
24 insurer whether known as a managing general agent, manager or
25 other similar term, who, with or without the authority either
26 separately or together with affiliates, produces, directly or
27 indirectly, and underwrites an amount of gross direct written
28 premium equal to or more than five per centum of the
29 policyholder surplus as reported in the last annual statement of
30 the insurer in any one quarter or year together with one or more
19910H1669B3224 - 24 -
1 of the following:
2 (i) adjusts or pays claims in excess of an amount determined
3 by the Insurance Department; or
4 (ii) negotiates reinsurance on behalf of the insurer.
5 (2) Notwithstanding paragraph (1), the following persons
6 shall not be considered as managing general agents for the
7 purposes of this article:
8 (i) an employe of the insurer;
9 (ii) a United States manager of the United States branch of
10 an alien insurer;
11 (iii) an underwriting manager which, pursuant to contract,
12 manages all the insurance operations of the insurer, is under
13 common control with the insurer, subject to Article XII of the
14 act of May 17, 1921 (P.L.682, No.284), known as "The Insurance
15 Company Law of 1921," and whose compensation is not based on the
16 volume of premiums written;
17 (iv) the attorney-in-fact authorized by and acting for the
18 subscribers of a reciprocal insurer or inter-insurance exchange
19 under powers of attorney; <--
20 "Producer" means an agent, broker or reinsurance intermediary <--
21 licensed pursuant to the applicable provisions of the insurance
22 laws of the Commonwealth.
23 "Retrocession" means the transaction whereby a reinsurer
24 cedes all or part of the reinsurance it has assumed to another
25 reinsurer.
26 (V) ANY MANAGER OR EXCLUSIVE GENERAL AGENT OPERATING UNDER <--
27 ANY MANAGEMENT CONTRACT OR EXCLUSIVE GENERAL AGENCY AGREEMENT
28 ENTERED INTO PRIOR TO DECEMBER 22, 1965, AND THEREFOR NOT
29 SUBJECT TO LICENSING PURSUANT TO SECTION 651 OF THIS ACT:
30 PROVIDED, HOWEVER, THAT ANY SUCH MANAGEMENT CONTRACT OR
19910H1669B3224 - 25 -
1 EXCLUSIVE GENERAL AGENCY AGREEMENT SHALL SUBJECT THE MANAGER OR
2 EXCLUSIVE GENERAL AGENT AND THE INSURER TO ARTICLE XII OF THE
3 ACT OF MAY 17, 1921 (P.L.682, NO.284), KNOWN AS "THE INSURANCE
4 COMPANY LAW OF 1921": AND FURTHER PROVIDED, THAT ANY SALE,
5 ASSIGNMENT OR TRANSFER OF ANY MANAGEMENT CONTRACT OR EXCLUSIVE
6 GENERAL AGENCY AGREEMENT, WHETHER SAID CONTRACT OR AGREEMENT WAS
7 ENTERED INTO BEFORE OR AFTER DECEMBER 22, 1965, SHALL MAKE THE
8 PURCHASER, ASSIGNEE OR TRANSFEREE SUBJECT TO LICENSING UNDER
9 THIS ARTICLE.
10 "Underwrite" means the authority to accept or reject risk on
11 behalf of the insurer.
12 Section 802. Licensure.--(a) No person, firm, association
13 or corporation shall act in the capacity of an MGA with respect
14 to risks located in this Commonwealth for an insurer licensed in
15 this Commonwealth unless such person is a licensed producer <--
16 AGENT in this Commonwealth. <--
17 (b) No person, firm, association or corporation shall act in
18 the capacity of an MGA representing an insurer domiciled in this
19 Commonwealth with respect to risks located outside this
20 Commonwealth unless that person is licensed as a producer AN <--
21 AGENT in this Commonwealth. This license may be a nonresident
22 license issued under this article.
23 (c) The department may require a bond in an amount
24 acceptable to it for the protection of the insurer.
25 (d) The department may require the MGA to maintain an errors
26 and omissions policy.
27 Section 803. Required Contract Provisions.--No person, firm,
28 association or corporation acting in the capacity of an MGA
29 shall place business with an insurer unless there is in force a
30 written contract between the parties which sets forth the
19910H1669B3224 - 26 -
1 responsibilities of each party and where both parties share
2 responsibility for a particular function, specifies the division
3 of such responsibilities, and which contains the following
4 minimum provisions:
5 (1) The insurer may terminate the contract for cause upon
6 written notice to the MGA. The insurer may suspend the
7 underwriting authority of the MGA during the pendency of any
8 dispute regarding the cause for termination.
9 (2) The MGA will render accounts to the insurer detailing
10 all transactions and remit all funds due under the contract to
11 the insurer on not less than a monthly basis.
12 (3) All funds collected for the account of an insurer will
13 be held by the MGA in a fiduciary capacity in a bank which is a
14 member of the Federal Reserve System. This account shall be used
15 for all payments on behalf of the insurer. The MGA may retain no
16 more than three months estimated claims payments and allocated
17 loss adjustment expenses.
18 (4) Separate records of business written by the MGA will be
19 maintained. The insurer shall have access and the right to copy
20 all accounts and the records related to its business in a form
21 usable by the insurer and the department shall have access to
22 all books, bank accounts and records of the MGA in a form usable
23 to the department. These records shall be retained according to
24 the laws pertaining to the conduct of examinations.
25 (5) The contract may not be assigned in whole or part by the
26 MGA.
27 (6) Appropriate underwriting guidelines, including all of
28 the following:
29 (i) The maximum annual premium volume.
30 (ii) The basis of the rates to be charged.
19910H1669B3224 - 27 -
1 (iii) The types of risks which may be written.
2 (iv) Maximum limits of liability.
3 (v) Applicable exclusions.
4 (vi) Territorial limitations.
5 (vii) Policy cancellation provisions.
6 (viii) The maximum policy period.
7 (7) The insurer shall have the right to cancel or nonrenew
8 any policy of insurance subject to the applicable laws and
9 regulations concerning the cancellation and nonrenewal of
10 insurance policies.
11 (8) If the contract permits the MGA to settle claims on
12 behalf of the insurer the following shall apply:
13 (i) All claims must be reported to the company in a timely
14 manner.
15 (ii) A copy of the claim file shall be sent to the insurer
16 at its request or as soon as it becomes known that the claim:
17 (A) has the potential to exceed an amount determined by the
18 commissioner or exceeds the limit set by the company, whichever
19 is less;
20 (B) involves a coverage dispute;
21 (C) may exceed the MGA's claims settlement authority;
22 (D) is open for more than six months; or
23 (E) is closed by payment of an amount set by the department
24 or an amount set by the company, whichever is less.
25 (iii) All claim files shall be the joint property of the
26 insurer and the MGA. However, upon an order of liquidation of
27 the insurer such files shall become the sole property of the
28 insurer or its estate. The MGA shall have reasonable access to
29 and the right to copy the files on a timely basis.
30 (iv) Any settlement authority granted to the MGA may be
19910H1669B3224 - 28 -
1 terminated for cause upon the insurer's written notice to the
2 MGA or upon the termination of the contract. The insurer may
3 suspend the settlement authority during the pendency of any
4 dispute regarding the cause for termination.
5 (9) When electronic claims files are in existence, the
6 contract must address the timely transmission of the data.
7 (10) If the contract provides for a sharing of interim
8 profits by the MGA, and the MGA has the authority to determine
9 the amount of the interim profits by establishing loss reserves
10 or controlling claim payments, or in any other manner, interim
11 profits will not be paid to the MGA until one year after they
12 are earned for property insurance business and five years after
13 they are earned on casualty business and not until the profits
14 have been verified pursuant to section 805.
15 Section 804. Prohibited Acts.--An MGA shall not:
16 (1) Bind reinsurance or retrocessions on behalf of the
17 insurer except that the MGA may bind facultative reinsurance
18 contracts pursuant to obligatory facultative agreements if the
19 contract with the insurer contains reinsurance underwriting
20 guidelines, including, for both reinsurance assumed and ceded, a
21 list of reinsurers with which such automatic agreements are in
22 effect, the coverages and amounts or percentages that may be
23 reinsured and the commission schedules.
24 (2) Commit the insurer to participate in insurance or
25 reinsurance syndicates.
26 (3) Appoint any producer AGENT without assuring that the <--
27 producer AGENT is lawfully licensed to transact the type of <--
28 insurance for which he is appointed.
29 (4) Without prior approval of the insurer, pay or commit the
30 insurer to pay a claim over a specified amount, net of
19910H1669B3224 - 29 -
1 reinsurance, which shall not exceed one per centum of the
2 insurer's policyholder's surplus as of December 31 of the last
3 completed calendar year.
4 (5) Collect any payment from a reinsurer or commit the
5 insurer to any claim settlement with a reinsurer, without prior
6 approval of the insurer. If prior approval is given, a report
7 must be promptly forwarded to the insurer.
8 (6) Permit its subproducer SUBAGENT to serve on the <--
9 insurer's board of directors.
10 (7) Jointly employ an individual who is employed with the
11 insurer.
12 (8) Appoint a sub-MGA.
13 Section 805. Duties of Insurers.--(a) The insurer shall
14 have on file an independent financial examination, in a form
15 acceptable to the department, of each MGA with which it has done
16 business.
17 (b) If an MGA establishes loss reserves, the insurer shall
18 annually obtain the opinion of an actuary attesting to the
19 adequacy of loss reserves established for losses incurred and
20 outstanding on business produced by the MGA. This is in addition
21 to any other required loss reserve certification.
22 (c) The insurer shall periodically, at least semiannually,
23 conduct an onsite review of the underwriting and claims
24 processing operations of the MGA.
25 (d) Binding authority for all reinsurance contracts or
26 participation in insurance or reinsurance syndicates shall rest
27 with an officer of the insurer, who shall not be affiliated with
28 the MGA.
29 (e) Within thirty days of entering into or termination of a
30 contract with an MGA, the insurer shall provide written
19910H1669B3224 - 30 -
1 notification of such appointment or termination to the
2 department. Notices of appointment of an MGA shall include a
3 statement of duties which the applicant is expected to perform
4 on behalf of the insurer, the lines of insurance for which the
5 applicant is to be authorized to act and any other information
6 the commissioner may request.
7 (f) An insurer shall review its books and records each
8 quarter to determine if any producer AGENT has become, by <--
9 operation of section 801, an MGA as defined in that section. If
10 the insurer determines that a producer AN AGENT has become an <--
11 MGA, the insurer shall promptly notify the producer AGENT and <--
12 the department of such determination and the insurer and
13 producer AGENT must fully comply with the provisions of this <--
14 article within thirty days.
15 (g) An insurer shall not appoint to its board of directors
16 an officer, director, employe, subproducer SUBAGENT or <--
17 controlling shareholder of its MGAs. This subsection shall not
18 apply to relationships governed by Article XI or XII of the act
19 of May 17, 1921 (P.L.682, No.284), known as "The Insurance
20 Company Law of 1921."
21 Section 806. Examination Authority.--The acts of the MGA are
22 considered to be the acts of the insurer on whose behalf it is
23 acting. An MGA may be examined as if it were the insurer in
24 accordance with the law pertaining to the conduct of
25 examinations.
26 Section 807. Penalties and Liability.--(a) If the
27 commissioner finds after a hearing conducted in accordance with
28 2 Pa.C.S. (relating to administrative law and procedure) that
29 any person has violated any provision of this article, the
30 commissioner may order:
19910H1669B3224 - 31 -
1 (1) for each separate violation, a civil penalty not to
2 exceed five thousand dollars ($5,000);
3 (2) revocation or suspension of the producer's AGENT'S <--
4 license; and
5 (3) the MGA to reimburse the insurer, the rehabilitator or
6 liquidator of the insurer for any losses incurred by the insurer
7 caused by a violation of this article committed by the MGA.
8 (b) The decision, determination or order of the commissioner
9 pursuant to subsection (a) shall be subject to judicial review
10 pursuant to 2 Pa.C.S.
11 (c) Nothing contained in this section shall affect the right
12 of the commissioner to impose any other penalties provided for
13 in the insurance laws of this Commonwealth.
14 (d) Nothing contained in this article is intended to or
15 shall in any manner limit or restrict the rights of
16 policyholders, claimants and auditors.
17 ARTICLE IX.
18 EXAMINATIONS.
19 Section 901. Purpose.--The purpose of this article is to
20 provide an effective and efficient system for examining the
21 activities, operations, financial condition and affairs of all
22 persons transacting the business of insurance in this
23 Commonwealth and all persons otherwise subject to the
24 jurisdiction of the department. The provisions of this article
25 are intended to enable the department to adopt a flexible system
26 of examinations which directs resources as may be deemed
27 appropriate and necessary for the administration of the
28 insurance and insurance related laws of this Commonwealth.
29 Section 902. Definitions.--The following words and phrases
30 when used in this article shall have, unless the context clearly
19910H1669B3224 - 32 -
1 indicates otherwise, the meanings given to them in this section:
2 "Commissioner" means the Insurance Commissioner of the
3 Commonwealth.
4 "Company" means any person engaging in or proposing or
5 attempting to engage in any transaction or kind of insurance or
6 surety business and any person or group of persons who may
7 otherwise be subject to the administrative or regulatory
8 authority of the Insurance Department.
9 "Department" means the Insurance Department of the
10 Commonwealth.
11 "Examiner" means any individual or firm having been
12 authorized by the Insurance Department to conduct an examination
13 under this article.
14 "Insurer" means any individual, corporation, association,
15 partnership, reciprocal exchange, inter-insurer, Lloyds insurer,
16 fraternal benefit society, beneficial association and any other
17 legal entity engaged in the business of insurance, including
18 agents, brokers and adjusters and also means health care plans
19 as defined in 40 Pa.C.S. Chs. 61 (relating to hospital plan
20 corporations), 63 (relating to professional health services plan
21 corporations), 65 (relating to fraternal benefit societies) and
22 67 (relating to beneficial societies) and the act of December
23 29, 1972 (P.L.1701, No.364), known as the "Health Maintenance
24 Organization Act." For purposes of this article, health care
25 plans, fraternal benefit societies and beneficial societies
26 shall be deemed to be engaged in the business of insurance.
27 "NAIC" MEANS THE NATIONAL ASSOCIATION OF INSURANCE <--
28 COMMISSIONERS.
29 "Person" means any individual, aggregation of individuals,
30 trust, association, partnership or corporation or any affiliate
19910H1669B3224 - 33 -
1 thereof. The term shall exclude agents.
2 Section 903. Authority, Scope and Scheduling of
3 Examinations.--(a) Every company or person subject to
4 examination in accordance with this act must keep all books,
5 records, accounts, papers, documents and any or all computer or
6 other recordings relating to its property, assets, business and
7 affairs in such manner and for such time periods as the
8 department, in its discretion, may require in order that its
9 authorized representatives may readily verify the financial
10 condition of the company or person and ascertain whether the
11 company or person has complied with the laws of this
12 Commonwealth.
13 (b) The department or any of its examiners may conduct an
14 examination under this article of any company as often as the
15 commissioner in his sole discretion deems appropriate but shall,
16 at a minimum, conduct an examination of every insurer licensed
17 in this Commonwealth not less frequently than once every five
18 years. In scheduling and determining the nature, scope and
19 frequency of the examinations, the commissioner shall consider
20 such matters as the results of financial statement analyses and
21 ratios, changes in management or ownership, actuarial opinions,
22 reports of independent certified public accountants and other
23 criteria as set forth in an examiners' handbook adopted by a <--
24 national association of insurance commissioners THE EXAMINERS' <--
25 HANDBOOK ADOPTED BY THE NAIC and in effect when the commissioner
26 exercises discretion under this subsection.
27 (c) For purposes of completing an examination of any company
28 under this article, the department may examine or investigate
29 any person, or the business of any person, insofar as such
30 examination or investigation is, in the sole discretion of the
19910H1669B3224 - 34 -
1 commissioner, necessary or material to the examination of the
2 company.
3 (d) In lieu of an examination under this article of any
4 foreign or alien insurer licensed in this Commonwealth, the
5 department may accept an examination report on such company as
6 prepared by the insurance department for the company's state of
7 domicile or port-of-entry state until January 1, 1994.
8 Thereafter, such reports may only be accepted if:
9 (1) the insurance department of the other state was at the
10 time of the examination accredited under a national association <--
11 of insurance commissioners accreditation program; or THE NAIC <--
12 FINANCIAL REGULATION STANDARDS AND ACCREDITATION PROGRAM; OR
13 (2) the examination is performed under the supervision of an
14 accredited insurance department OR with the participation of one <--
15 or more examiners who are employed by that department and who,
16 after a review of the examination work papers and report, state
17 under oath that the examination was performed in a manner
18 consistent with the standards and procedures required by their
19 insurance department.
20 Section 904. Conduct of Examinations.--(a) Upon determining
21 that an examination should be conducted, the commissioner or his
22 designee shall issue an examination warrant appointing one or
23 more examiners to perform the examination and instructing them
24 as to the scope of the examination. In conducting the
25 examination, the examiner shall observe those guidelines and
26 procedures set forth in an examiners' handbook adopted by a <--
27 national association of insurance commissioners. THE EXAMINERS' <--
28 HANDBOOK ADOPTED BY THE NAIC. The department may also employ
29 such other guidelines or procedures as it may deem appropriate.
30 (b) Every company or person from whom information is sought,
19910H1669B3224 - 35 -
1 its officers, directors and agents must provide to the examiners
2 appointed under subsection (a) timely, convenient and free
3 access at all reasonable hours at its offices to all books,
4 records, accounts, papers, documents and any or all computer or
5 other recordings relating to the property, assets, business and
6 affairs of the company being examined. The officers, directors,
7 employes and agents of the company or person must facilitate
8 such examination and aid in such examination so far as it is in
9 their power to do so. The refusal of any company, by its
10 officers, directors, employes or agents, to submit to
11 examination or to comply with any reasonable written request of
12 the examiners shall be grounds for suspension or refusal of, or
13 nonrenewal of any license or authority held by the company to
14 engage in an insurance or other business subject to the
15 department's jurisdiction. Any such proceedings for suspension,
16 revocation or refusal of any license or authority shall be
17 conducted pursuant to 2 Pa.C.S. (relating to administrative law
18 and procedure).
19 (c) The commissioner or any of his examiners shall have the
20 power to issue subpoenas, to administer oaths and to examine
21 under oath any person as to any matter pertinent to the
22 examination. Upon the failure or refusal of any person to obey a
23 subpoena, the department may petition a court of competent
24 jurisdiction, and upon proper showing, the court may enter any
25 order compelling the witness to appear and testify or produce
26 documentary evidence. Failure to obey the court order shall be
27 punishable as contempt of court.
28 (d) When making an examination under this article, the
29 department may retain attorneys, appraisers, independent
30 actuaries, independent certified public accountants or other
19910H1669B3224 - 36 -
1 professionals and specialists as examiners, the cost of which
2 shall be borne by the company which is the subject of the
3 examination.
4 (e) Nothing contained in this article shall be construed to
5 limit the department's authority to terminate or suspend any
6 examination in order to pursue other legal or regulatory action
7 pursuant to the insurance laws of this Commonwealth. Findings of
8 fact and conclusions made pursuant to any examination shall be
9 prima facie evidence in any legal or regulatory action.
10 (f) Nothing contained in this article shall be construed to
11 limit the department's authority to use and, if appropriate, to
12 make public any final or preliminary examination report, any
13 examiner or company workpapers or other documents, or any other
14 information discovered or developed during the course of any
15 examination in the furtherance of any legal or regulatory action
16 which the commissioner may, in his sole discretion, deem
17 appropriate.
18 Section 905. Examination Reports.--(a) All examination
19 reports shall be comprised of only facts appearing upon the
20 books, records, or other documents of the company, its agents or
21 other persons examined, or as ascertained from the testimony of
22 its officers or agents or other persons examined concerning its
23 affairs, and such conclusions and recommendations as the
24 examiners find reasonably warranted from such facts.
25 (b) No later than sixty days following completion of the
26 examination, the examiner in charge shall file with the
27 department a verified written report of examination under oath.
28 Upon receipt of the verified report, the department shall
29 transmit the report to the company examined, together with a
30 notice which shall afford such company examined a reasonable
19910H1669B3224 - 37 -
1 opportunity of not more than thirty days to make a written
2 submission or rebuttal with respect to any matters contained in
3 the examination report.
4 (c) Within thirty days of the end of the period allowed for
5 the receipt of written submissions or rebuttals, the
6 commissioner or his designee shall fully consider and review the
7 report, together with any written submissions or rebuttals and
8 any relevant portions of the examiner's workpapers and enter an
9 order:
10 (1) adopting the examination report as filed or with
11 modification or corrections. If the examination report reveals
12 that the company is operating in violation of any law,
13 regulation or prior order of the department, the commissioner
14 may order the company to take any action the commissioner
15 considers necessary and appropriate to cure such violation;
16 (2) rejecting the examination report with directions to the
17 examiners to reopen the examination for purposes of obtaining
18 additional data, documentation or information, and refiling
19 pursuant to subsection (a); or
20 (3) calling for an investigatory hearing with no less than
21 twenty days' notice to the company for purposes of obtaining
22 additional documentation, data, information and testimony.
23 (d) (1) All orders entered pursuant to subsection (c)(1)
24 shall be accompanied by findings and conclusions resulting from
25 the commissioner's consideration and review of the examination
26 report, relevant examiner workpapers and any written submissions
27 or rebuttals. Any such order shall be considered a final
28 administrative decision and may be appealed to the commissioner
29 pursuant to 2 Pa.C.S. (relating to administrative law and
30 procedure), and shall be served upon the company by certified
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1 mail, together with a copy of the adopted examination report.
2 Within thirty days of the issuance of the adopted report, the
3 company shall file affidavits executed by each of its directors
4 stating under oath that they have received a copy of the adopted
5 report and related orders.
6 (2) Any hearing conducted under subsection (c)(3) by the
7 department or its authorized representative, shall be conducted
8 as a nonadversarial confidential investigatory proceeding as
9 necessary for the resolution of any inconsistencies,
10 discrepancies or disputed issues apparent upon the face of the
11 filed examination report or raised by or as a result of the
12 department's review of relevant workpapers or by the written
13 submission or rebuttal of the company. Within twenty days of the
14 conclusion of any such hearing, the commissioner shall enter an
15 order pursuant to subsection (c)(1).
16 (3) The commissioner shall not appoint an examiner as an
17 authorized representative to conduct the hearing. The hearing
18 shall proceed expeditiously with discovery by the company
19 limited to the examiner's workpapers which tend to substantiate
20 any assertions set forth in any written submission or rebuttal.
21 The commissioner or his representative may issue subpoenas for
22 the attendance of any witnesses or the production of any
23 documents deemed relevant to the investigation whether under the
24 control of the department, the company or other persons. The
25 documents produced shall be included in the record and testimony
26 taken by the commissioner or his representative shall be under
27 oath and preserved for the record.
28 (4) The hearing shall proceed with the commissioner or his
29 designee posing questions to the persons subpoenaed. Thereafter
30 the company and the department may present testimony relevant to
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1 the investigation. Cross examination shall be conducted only by
2 the commissioner or his designee. The company and the department
3 shall be permitted to make closing statements and may be
4 represented by counsel of their choice.
5 (5) Nothing contained in this section shall require the
6 department to disclose any information or records which would
7 indicate or show the existence or content of any investigation
8 or activity of a criminal justice agency.
9 (e) (1) Upon the adoption of the examination report under
10 subsection (c)(1), the department shall continue to hold the
11 content of the examination report as private and confidential
12 information for a period of thirty days except to the extent
13 provided in subsection (b). Thereafter, the department may open
14 the report for public inspection so long as no court of
15 competent jurisdiction has stayed its publication.
16 (2) Nothing contained in this article shall prevent or be
17 construed as prohibiting the commissioner from disclosing the
18 content of an examination report, preliminary examination report
19 or results, or any matter relating thereto, to the Insurance
20 Department of this or any other state or country, or to law
21 enforcement officials of this or any other state or agency of
22 the Federal Government at any time, so long as such agency or
23 office receiving the report or matters relating thereto agrees
24 in writing to hold it confidential and in a manner consistent
25 with this article.
26 (3) In the event the department determines that regulatory
27 action is appropriate as a result of any examination, it may
28 initiate any proceedings or actions as provided by law.
29 (f) All working papers, recorded information, documents and
30 copies thereof produced by, obtained by or disclosed to the
19910H1669B3224 - 40 -
1 department or any other person in the course of an examination
2 made under this article shall be given confidential treatment
3 and are not subject to subpoena and may not be made public by
4 the department or any other person, except to the extent
5 provided in subsection (e). Access may also be granted to a <--
6 national association of insurance commissioners. THE NAIC. Such <--
7 parties must agree in writing prior to receiving the information
8 to provide to it the same confidential treatment as required by
9 the act of June 21, 1957 (P.L.390, No.212), referred to as the
10 Right-to-Know Law, unless the prior written consent of the
11 company to which it pertains has been obtained.
12 Section 906. Conflict of Interest.--(a) No examiner may be
13 appointed by the commissioner if such examiner, either directly
14 or indirectly, has a conflict of interest or is affiliated with
15 the management of or owns a pecuniary interest in any person
16 subject to examination under this article. This section shall
17 not be construed to automatically preclude an examiner from
18 being:
19 (1) a policyholder or claimant under an insurance policy;
20 (2) a grantor of a mortgage or similar instrument on such
21 examiner's residence to a regulated entity if done under
22 customary terms and in the ordinary course of business;
23 (3) an investment owner in shares of regulated diversified
24 investment companies; or
25 (4) a settlor or beneficiary of a "blind trust" into which
26 any otherwise impermissible holdings have been placed.
27 (b) Notwithstanding the requirements of this section, the
28 department may retain from time to time, on an individual basis,
29 qualified actuaries, certified public accountants or other
30 similar individuals who are independently practicing their
19910H1669B3224 - 41 -
1 professions, even though these persons may from time to time be
2 similarly employed or retained by persons subject to examination
3 under this article.
4 Section 907. Cost of Examinations.--All the expenses
5 incurred in and about the examination of any company, including
6 compensation of department employes assisting in said
7 examination and any other professionals or specialists retained
8 in accordance with section 904(d), shall be charged to and paid
9 by the company examined in such manner as the commissioner shall
10 by regulation prescribe.
11 Section 908. Immunity from Liability.--(a) No cause of
12 action shall arise nor shall any liability be imposed against
13 the commissioner, the commissioner's authorized representatives
14 or any examiner appointed by the commissioner for any statements
15 made or conduct performed in good faith while carrying out the
16 provisions of this article.
17 (b) No cause of action shall arise, nor shall any liability
18 be imposed against any person for the act of communicating or
19 delivering information or data to the commissioner, his
20 authorized representative or examiner or the department pursuant
21 to an examination made under this article, if such act of
22 communication or delivery was performed in good faith and
23 without fraudulent intent or the intent to deceive.
24 (c) This section does not abrogate or modify in any way any
25 common law or statutory privilege or immunity heretofore enjoyed
26 by any person identified in subsection (a).
27 (d) A person identified in subsection (a) shall be entitled
28 to an award of attorney fees and costs if he is the prevailing
29 party in a civil cause of action for libel, slander or any other
30 relevant tort arising out of his activities in carrying out the
19910H1669B3224 - 42 -
1 provisions of this article and the party bringing the action was
2 not substantially justified in doing so. For purposes of this
3 section a proceeding is "substantially justified" if it had a
4 reasonable basis in law or fact at the time that it was
5 initiated.
6 Section 13. Managers and exclusive general agents licensed
7 in accordance with section 651 of the act and subject to the
8 provisions of Article VIII, as added by this amendatory act,
9 shall be required to comply with Article VIII upon renewal of
10 their existing license or upon the effective date of this act,
11 whichever occurs later.
12 Section 14. All acts and parts of acts are repealed insofar
13 as they are inconsistent with this act.
14 Section 15. This act shall take effect in 120 days.
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