PRINTER'S NO. 1871
No. 1597 Session of 1991
INTRODUCED BY VEON, CAPPABIANCA, PISTELLA, BELARDI, KOSINSKI,
KUKOVICH, PETRONE, TRELLO, MICHLOVIC, MELIO, RICHARDSON,
BUTKOVITZ AND BUNT, JUNE 6, 1991
REFERRED TO COMMITTEE ON INSURANCE, JUNE 6, 1991
AN ACT
1 Relating to managing general agents of insurers; specifying
2 licensure requirements; providing for certain contract
3 provisions; prescribing duties of insurers; imposing civil
4 penalties; and making a repeal.
5 The General Assembly of the Commonwealth of Pennsylvania
6 hereby enacts as follows:
7 Section 1. Short title.
8 This act shall be known and may be cited as the Managing
9 General Agents Act.
10 Section 2. Definitions.
11 The following words and phrases when used in this act shall
12 have the meanings given to them in this section unless the
13 context clearly indicates otherwise:
14 "Actuary." A person who is a member in good standing of the
15 American Academy of Actuaries.
16 "Commissioner." The Insurance Commissioner of the
17 Commonwealth.
18 "Department." The Insurance Department of the Commonwealth.
1 "Insurer." Any person, firm, association or corporation
2 licensed in this Commonwealth pursuant to the applicable
3 provisions of the insurance laws of the Commonwealth.
4 "Managing general agent" or "MGA":
5 (1) Any person, firm, association or corporation who
6 negotiates and binds ceding reinsurance contracts on behalf
7 of an insurer or manages all or part of the insurance
8 business of an insurer (including the management of a
9 separate division, department or underwriting office) and
10 acts as an agent for such insurer whether known as a managing
11 general agent, manager or other similar term, who, with or
12 without the authority either separately or together with
13 affiliates, produces, directly or indirectly, and underwrites
14 an amount of gross direct written premium equal to or more
15 than 5% of the policyholder surplus as reported in the last
16 annual statement of the insurer in any one quarter or year
17 together with one or more of the following:
18 (i) adjusts or pays claims in excess of an amount
19 determined by the Insurance Department; or
20 (ii) negotiates reinsurance on behalf of the
21 insurer.
22 (2) Notwithstanding paragraph (1), the following persons
23 shall not be considered as managing general agents for the
24 purposes of this act:
25 (i) an employee of the insurer;
26 (ii) a United States manager of the United States
27 branch of an alien insurer;
28 (iii) an underwriting manager which, pursuant to
29 contract, manages all the insurance operations of the
30 insurer, is under common control with the insurer,
19910H1597B1871 - 2 -
1 subject to Article XII of the act of May 17, 1921
2 (P.L.682, No.284), known as The Insurance Company Law of
3 1921, and whose compensation is not based on the volume
4 of premiums written;
5 (iv) the attorney-in-fact authorized by and acting
6 for the subscribers of a reciprocal insurer or inter-
7 insurance exchange under powers of attorney.
8 "Underwrite." The authority to accept or reject risk on
9 behalf of the insurer.
10 Section 3. Licensure.
11 (a) Risks within Commonwealth.--No person, firm, association
12 or corporation shall act in the capacity of an MGA with respect
13 to risks located in this Commonwealth for an insurer licensed in
14 this Commonwealth unless such person is a licensed producer in
15 this Commonwealth.
16 (b) Risks outside Commonwealth.--No person, firm,
17 association or corporation shall act in the capacity of an MGA
18 representing an insurer domiciled in this Commonwealth with
19 respect to risks located outside this Commonwealth unless that
20 person is licensed as a producer in this Commonwealth. This
21 license may be a nonresident license issued under this act.
22 (c) Bond.--The department may require a bond in an amount
23 acceptable to it for the protection of the insurer.
24 (d) Errors and omissions policy.--The department may require
25 the MGA to maintain an errors and omissions policy.
26 Section 4. Required contract provisions.
27 No person, firm, association or corporation acting in the
28 capacity of an MGA shall place business with an insurer unless
29 there is in force a written contract between the parties which
30 sets forth the responsibilities of each party and where both
19910H1597B1871 - 3 -
1 parties share responsibility for a particular function,
2 specifies the division of such responsibilities, and which
3 contains the following minimum provisions:
4 (1) The insurer may terminate the contract for cause
5 upon written notice to the MGA. The insurer may suspend the
6 underwriting authority of the MGA during the pendency of any
7 dispute regarding the cause for termination.
8 (2) The MGA will render accounts to the insurer
9 detailing all transactions and remit all funds due under the
10 contract to the insurer on not less than a monthly basis.
11 (3) All funds collected for the account of an insurer
12 will be held by the MGA in a fiduciary capacity in a bank
13 which is a member of the Federal Reserve System. This account
14 shall be used for all payments on behalf of the insurer. The
15 MGA may retain no more than three months estimated claims
16 payments and allocated loss adjustment expenses.
17 (4) Separate records of business written by the MGA will
18 be maintained. The insurer shall have access and the right to
19 copy all accounts and the records related to its business in
20 a form usable by the insurer and the department shall have
21 access to all books, bank accounts and records of the MGA in
22 a form usable to the department. These records shall be
23 retained according to the act of May 9, 1949 (P.L.1025,
24 No.298), referred to as the Insurance Uniform Accounting and
25 Reporting Law.
26 (5) The contract may not be assigned in whole or part by
27 the MGA.
28 (6) Appropriate underwriting guidelines, including all
29 of the following:
30 (i) The maximum annual premium volume.
19910H1597B1871 - 4 -
1 (ii) The basis of the rates to be charged.
2 (iii) The types of risks which may be written.
3 (iv) Maximum limits of liability.
4 (v) Applicable exclusions.
5 (vi) Territorial limitations.
6 (vii) Policy cancellation provisions.
7 (viii) The maximum policy period.
8 (7) The insurer shall have the right to cancel or
9 nonrenew any policy of insurance subject to the applicable
10 laws and regulations concerning the cancellation and
11 nonrenewal of insurance policies.
12 (8) If the contract permits the MGA to settle claims on
13 behalf of the insurer the following shall apply:
14 (i) All claims must be reported to the company in a
15 timely manner.
16 (ii) A copy of the claim file shall be sent to the
17 insurer at its request or as soon as it becomes known
18 that the claim:
19 (A) has the potential to exceed an amount
20 determined by the commissioner or exceeds the limit
21 set by the company, whichever is less;
22 (B) involves a coverage dispute;
23 (C) may exceed the MGA's claims settlement
24 authority;
25 (D) is open for more than six months; or
26 (E) is closed by payment of an amount set by the
27 department or an amount set by the company, whichever
28 is less.
29 (iii) All claim files shall be the joint property of
30 the insurer and the MGA. However, upon an order of
19910H1597B1871 - 5 -
1 liquidation of the insurer such files shall become the
2 sole property of the insurer or its estate. The MGA shall
3 have reasonable access to and the right to copy the files
4 on a timely basis.
5 (iv) Any settlement authority granted to the MGA may
6 be terminated for cause upon the insurer's written notice
7 to the MGA or upon the termination of the contract. The
8 insurer may suspend the settlement authority during the
9 pendency of any dispute regarding the cause for
10 termination.
11 (9) When electronic claims files are in existence, the
12 contract must address the timely transmission of the data.
13 (10) If the contract provides for a sharing of interim
14 profits by the MGA, and the MGA has the authority to
15 determine the amount of the interim profits by establishing
16 loss reserves or controlling claim payments, or in any other
17 manner, interim profits will not be paid to the MGA until one
18 year after they are earned for property insurance business
19 and five years after they are earned on casualty business and
20 not until the profits have been verified pursuant to section
21 6.
22 Section 5. Prohibited acts.
23 An MGA shall not:
24 (1) Bind reinsurance or retrocessions on behalf of the
25 insurer except that the MGA may bind facultative reinsurance
26 contracts pursuant to obligatory facultative agreements if
27 the contract with the insurer contains reinsurance
28 underwriting guidelines, including, for both reinsurance
29 assumed and ceded, a list of reinsurers with which such
30 automatic agreements are in effect, the coverages and amounts
19910H1597B1871 - 6 -
1 or percentages that may be reinsured and the commission
2 schedules.
3 (2) Commit the insurer to participate in insurance or
4 reinsurance syndicates.
5 (3) Appoint any producer without assuring that the
6 producer is lawfully licensed to transact the type of
7 insurance for which he is appointed.
8 (4) Without prior approval of the insurer, pay or commit
9 the insurer to pay a claim over a specified amount, net of
10 reinsurance, which shall not exceed 1% of the insurer's
11 policyholder's surplus as of December 31 of the last
12 completed calendar year.
13 (5) Collect any payment from a reinsurer or commit the
14 insurer to any claim settlement with a reinsurer, without
15 prior approval of the insurer. If prior approval is given, a
16 report must be promptly forwarded to the insurer.
17 (6) Permit its subproducer to serve on the insurer's
18 board of directors.
19 (7) Jointly employ an individual who is employed with
20 the insurer.
21 (8) Appoint a sub-MGA.
22 Section 6. Duties of insurers.
23 (a) Financial examination.--The insurer shall have on file
24 an independent financial examination, in a form acceptable to
25 the department, of each MGA with which it has done business.
26 (b) Loss reserves.--If an MGA establishes loss reserves, the
27 insurer shall annually obtain the opinion of an actuary
28 attesting to the adequacy of loss reserves established for
29 losses incurred and outstanding on business produced by the MGA.
30 This is in addition to any other required loss reserve
19910H1597B1871 - 7 -
1 certification.
2 (c) Onsite review.--The insurer shall periodically, at least
3 semiannually, conduct an onsite review of the underwriting and
4 claims processing operations of the MGA.
5 (d) Binding authority.--Binding authority for all
6 reinsurance contracts or participation in insurance or
7 reinsurance syndicates shall rest with an officer of the
8 insurer, who shall not be affiliated with the MGA.
9 (e) Notification of termination.--Within 30 days of entering
10 into or termination of a contract with an MGA, the insurer shall
11 provide written notification of such appointment or termination
12 to the department. Notices of appointment of an MGA shall
13 include a statement of duties which the applicant is expected to
14 perform on behalf of the insurer, the lines of insurance for
15 which the applicant is to be authorized to act and any other
16 information the commissioner may request.
17 (f) Review of records.--An insurer shall review its books
18 and records each quarter to determine if any producer has
19 become, by operation of section 2, an MGA as defined in that
20 section. If the insurer determines that a producer has become an
21 MGA, the insurer shall promptly notify the producer and the
22 department of such determination and the insurer and producer
23 must fully comply with the provisions of this act within 30
24 days.
25 (g) Board of directors.--An insurer shall not appoint to its
26 board of directors an officer, director, employee, subproducer
27 or controlling shareholder of its MGAs. This subsection shall
28 not apply to relationships governed by Article XI or XII of the
29 act of May 17, 1921 (P.L.682, No.284), known as The Insurance
30 Company Law of 1921.
19910H1597B1871 - 8 -
1 Section 7. Examination authority.
2 The acts of the MGA are considered to be the acts of the
3 insurer on whose behalf it is acting. An MGA may be examined as
4 if it were the insurer.
5 Section 8. Penalties and liability.
6 (a) Penalties.--If the commissioner finds after a hearing
7 conducted in accordance with 2 Pa.C.S. (relating to
8 administrative law and procedure) that any person has violated
9 any provision of this act, the commissioner may order:
10 (1) for each separate violation, a civil penalty of not
11 more than $5,000;
12 (2) revocation or suspension of the producer's license;
13 and
14 (3) the MGA to reimburse the insurer, the rehabilitator
15 or liquidator of the insurer for any losses incurred by the
16 insurer caused by a violation of this act committed by the
17 MGA.
18 (b) Judicial review.--The decision, determination or order
19 of the commissioner pursuant to subsection (a) shall be subject
20 to judicial review pursuant to 2 Pa.C.S.
21 (c) Other penalties.--Nothing contained in this section
22 shall affect the right of the commissioner to impose any other
23 penalties provided for in the insurance laws of this
24 Commonwealth.
25 (d) Other parties.--Nothing contained in this act is
26 intended to or shall in any manner limit or restrict the rights
27 of policyholders, claimants and auditors.
28 Section 9. Regulations.
29 The department may promulgate rules and regulations to carry
30 out the provisions of this act.
19910H1597B1871 - 9 -
1 Section 10. Repeal.
2 All acts and parts of acts are repealed insofar as they are
3 inconsistent with this act.
4 Section 11. Effective date.
5 This act shall take effect in 60 days.
E1L40BIL/19910H1597B1871 - 10 -