PRINTER'S NO. 1966
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 AND DEMPSEY,
JUNE 12, 1991
REFERRED TO COMMITTEE ON INSURANCE, JUNE 12, 1991
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:
25 Section 102. Short Title.--This act shall be known and may
1 be cited as "The Insurance Department Act of [one thousand nine
2 hundred and twenty-one] 1921."
3 Section 2. Section 208(c) of the act, amended July 31, 1968
4 (P.L.763, No.239), is amended to read:
5 Section 208. Certificates of Authority To Do Business.--* *
6 *
7 (c) (1) Whenever the commissioner believes, from evidence
8 satisfactory to him, that any insurance company, association, or
9 exchange is doing an insurance business within this Commonwealth
10 in violation of any provision of this act or any order or
11 requirement of the commissioner issued or promulgated pursuant
12 to authority expressly granted the commissioner by any provision
13 of this act or by law, or is about to violate any such
14 provision, order, or requirement, the commissioner may, [after
15 approval by the Attorney General, bring an action in the Court
16 of Common Pleas of Dauphin County against such company,
17 association, or exchange to enjoin such company, association, or
18 exchange from continuing such violation or engaging therein or
19 doing any act in furtherance thereof. In such action an order or
20 judgment may be entered awarding such preliminary or final
21 injunction as is proper.] in his discretion, take against the
22 offending party or parties any one or more of the following
23 courses of action:
24 (i) Revoke the certificate of authority of such offending
25 company, association or exchange.
26 (ii) Refuse to renew the certificate of authority of such
27 offending company, association or exchange.
28 This remedy is in addition to any other remedy provided by this
29 act or by law.
30 (2) Before the Insurance Commissioner shall take any action
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1 as set forth in paragraph (1), he shall give written notice to
2 the person, company, association or exchange accused of
3 violating the laws, stating specifically the nature of such
4 alleged violation and fixing a time and place, at least ten days
5 thereafter, when a hearing before the Insurance Commissioner
6 regarding the matter shall be held.
7 * * *
8 Section 3. The act is amended by adding a section to read:
9 Section 223. Jurisdiction Over Providers of Health Care
10 Benefits.--(a) Notwithstanding any other provision of law, and
11 except as provided in this section, any person or other entity
12 which provides benefits in this Commonwealth for medical,
13 surgical, chiropractic, physical therapy, speech pathology,
14 audiology, professional mental health, dental, hospital or
15 optometric expenses, whether the benefits are provided by direct
16 payment, reimbursement or otherwise, shall comply with the
17 requirements of section 208 of this act, unless the person or
18 other entity shows that, while providing those services, it is
19 subject to the jurisdiction of another agency of the
20 Commonwealth, any subdivisions thereof, or the Federal
21 Government with respect to financial solvency.
22 (b) A person or entity may show that it is subject to the
23 jurisdiction of another agency of the Commonwealth, or any
24 subdivision thereof, or of the Federal Government, by providing
25 to the Insurance Commissioner the appropriate certificate,
26 license or other document issued by the other governmental
27 agency which permits or qualifies it to provide those services.
28 Such certificate, license or other document may constitute
29 evidence that a person or entity is subject to the jurisdiction
30 of another agency of the Commonwealth, or any subdivision
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1 thereof, or of the Federal Government, but such evidence is
2 subject to rebuttal. A Department of Labor letter concerning an
3 entity's purported status under the Employee Retirement Income
4 Security Act of 1974 (Public Law 93-406, 29 U.S.C. § 1001 et
5 seq.) is not a certificate, license or other document, within
6 the meaning of this section which permits or qualifies an entity
7 to provide services.
8 (c) Any person or entity which is unable to show under
9 subsection (b) that it is subject to the jurisdiction of another
10 agency of the Commonwealth or any subdivision thereof, or the
11 Federal Government, shall submit to an examination by the
12 Insurance Commissioner to determine the organization and
13 solvency of the person or the entity, and to determine whether
14 or not such person or entity complies with the applicable
15 provisions of law. The person or entity examined shall be
16 responsible for the Insurance Department's examination expenses
17 to the same extent as a licensed insurance company would be
18 responsible, if the person or entity is found to be subject to
19 the requirements of section 208 of this act.
20 (d) Any person or entity unable to show that it is subject
21 to the jurisdiction of another agency of the Commonwealth, or
22 any subdivision thereof, or of the Federal Government, shall be
23 subject to all appropriate provisions of law regarding the
24 conduct of its business.
25 (e) Any person, entity, agent or administrator which
26 advertises, sells, transacts or administers in this Commonwealth
27 the benefits described in subsection (a), and which is required
28 to submit to an examination by the Insurance Commissioner under
29 subsection (c), shall, if said benefits are not fully insured or
30 otherwise fully covered by any insurer licensed to do the
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1 business of insurance in this Commonwealth, nonprofit hospital
2 service plan or nonprofit health care plan, give notice to every
3 purchaser, prospective purchaser and covered person of such lack
4 of insurance or other coverage and lack of State insurance
5 insolvency guaranty funds protection.
6 (f) Any administrator which advertises or administers in
7 this Commonwealth the benefits described in subsection (a), and
8 which is required to submit to an examination by the Insurance
9 Commissioner under subsection (c), shall give notice to any
10 person or agent, as described in subsection (e), of the elements
11 of the coverage, including, but not limited to, the amount of
12 "stop-loss" insurance in effect and lack of State insurance
13 insolvency guaranty funds protection.
14 (g) The notice described in subsections (e) and (f) shall be
15 in ten-point type on any solicitation, application, description
16 of benefits, renewal form or any other form provided to any
17 person covered by a person or entity described in subsection
18 (a).
19 (h) Upon satisfactory evidence of the violation of any of
20 the provisions of this section, the Insurance Commissioner may,
21 in his discretion, pursue any one or more of the following
22 courses of action, regardless of whether such person, entity,
23 agent, solicitor, broker or company is licensed or not licensed
24 by the Insurance Commissioner:
25 (1) Suspend or revoke or refuse to renew the license of
26 such offending party or parties.
27 (2) Impose a civil penalty of not more than $1,000 for
28 each and every act in violation of any of said sections by
29 said party or parties.
30 Section 4. Section 301.1(a) of the act, amended June 23,
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1 1976 (P.L.403, No.90), is amended to read:
2 Section 301.1. Computation of Reserve Liability; Health and
3 Accident Insurance.--(a) The Insurance Commissioner shall each
4 year value or cause to be valued, or shall annually require the
5 insurer to value or cause to be valued, the reserve liabilities,
6 as of the thirty-first day of December of the preceding year, of
7 every life insurance company doing business in this
8 Commonwealth, with respect to all of its health and accident
9 insurance policies. For all such policies, the company shall
10 maintain a claim reserve for incurred but unpaid claims and an
11 active life reserve which shall place a sound value on its
12 liabilities [under such policies] and be not less than the
13 reserve according to appropriate standards set forth in
14 regulations issued by the Insurance Commissioner [and, in]. In
15 no event, shall the active life reserve be less in the aggregate
16 than the pro rata gross unearned premiums for such policies.
17 * * *
18 Section 5. Section 311 of the act, amended May 20, 1949
19 (P.L.1498, No.449), is amended to read:
20 Section 311. Computation of Reserve Against Unpaid Losses in
21 Casualty Insurance Other Than Non-Cancellable Health and
22 Accident Insurance.--The Insurance Commissioner shall, in
23 calculating the reserve against unpaid losses of [casualty
24 insurance companies, other than losses under] any insurance
25 company, other than life insurance companies, for losses other
26 than under noncancellable health and accident insurance issued
27 on and after January first, one thousand nine hundred fifty,
28 [liability and workmen's compensation policies,] set down, by
29 careful estimate in each case, the loss likely to be incurred
30 against every claim presented or that may be presented in
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1 pursuance of notice from the insured of the occurrence of an
2 event that may result in a loss. The sum of the items so
3 estimated shall be the total amount of the reserve, except that,
4 in credit insurance, fifty per centum of the premiums on all
5 credit policies expiring in the months of October, November, and
6 December of the current year, less the amount of losses paid on
7 such policies, shall, in addition thereto, be charged in the
8 loss reserve.
9 Section 6. Section 311.1(a) of the act, amended June 23,
10 1976 (P.L.403, No.90), is amended to read:
11 Section 311.1. Computation of Reserve Liability; Health and
12 Accident Insurance.--(a) The Insurance Commissioner shall each
13 year value or cause to be valued, or shall annually require the
14 insurer to value or cause to be valued, the reserve liabilities,
15 as of the thirty-first day of December of the preceding year, of
16 every casualty insurance company doing business in this
17 Commonwealth, with respect to all of its health and accident
18 insurance policies. For all such policies the company shall
19 maintain a claim reserve for incurred but unpaid claims and an
20 active life reserve which shall place a sound value on its
21 liabilities [under such policies] and be not less than the
22 reserve according to appropriate standards set forth in
23 [regulation] regulations issued by the Insurance Commissioner
24 [and, in]. In no event, shall the active life reserve be less in
25 the aggregate than the pro rata gross unearned premiums for such
26 policies.
27 * * *
28 Section 7. Section 313 of the act, amended December 19, 1975
29 (P.L.571, No.163), is amended to read:
30 Section 313. Computation of Reserve.--[The reserve required
19910H1669B1966 - 7 -
1 of stock and mutual insurance companies and exchanges for
2 outstanding losses under insurance against loss or damage from
3 accident to, or injuries suffered by, an employe or other
4 person, and for which the insured is liable, shall be computed
5 as follows:
6 (b) For all liability premiums earned during the three years
7 immediately preceding the date as of which the statement is
8 made, such reserve shall be sixty per centum of the earned
9 liability premiums of each of such three years, less all loss
10 and loss expense payments made under liability policies written
11 in the corresponding years.
12 (c) For all compensation claims under policies written more
13 than three years prior to the date as of which the statement is
14 made, the present value, at four per centum interest, of the
15 determined and estimated future payments.
16 (d) For all compensation premiums earned in the three years
17 immediately preceding the date as of which the statement is
18 made, such reserve shall be sixty-five per centum of the earned
19 compensation premiums of each of such three years, less all loss
20 and loss expense payments made in connection with such claims
21 under policies written in the corresponding years, but, in any
22 event, such reserve shall be not less than the present value, at
23 four per centum interest, of the determined and the estimated
24 unpaid compensation claims under policies written during each of
25 such years.] In addition to the reserves required by section
26 311, any insurance company, other than life insurance companies,
27 is required to establish statutory reserves for those lines of
28 insurance reported in schedule "P" of the Annual Statement
29 Blank, as adopted for use in Pennsylvania by the commissioner,
30 in accordance with the instructions for calculation of such
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1 statutory reserves as published by a national association of
2 insurance commissioners.
3 Section 8. Sections 314 and 315 of the act are repealed.
4 Section 9. Section 316 of the act is amended to read:
5 Section 316. Power of Insurance Commissioner To Fix Amount
6 of Reserves.--Whenever, in the judgment of the Insurance
7 Commissioner, the [liability or compensation] loss reserves of
8 any insurer under his supervision, calculated in accordance with
9 the foregoing provisions, are inadequate, he may, in his
10 discretion, require such insurer to maintain additional reserves
11 based upon estimated individual claims or otherwise; or whenever
12 a satisfactory mathematical or actuarial table for valuing
13 compensation loss reserves is promulgated and approved by the
14 Insurance Commissioner, he may require any insurer under his
15 supervision to maintain, upon such tabular basis, greater or
16 lesser reserves than those hereinbefore provided for.
17 Section 10. Section 660 of the act, added December 3, 1975
18 (P.L.469, No.136), is amended to read:
19 Section 660. Action for Injunction or Other Process
20 Authorized.--(a) The Insurance Commissioner or a duly
21 designated deputy, upon advice of the Attorney General, may
22 maintain as hereinafter provided an action in the name of the
23 Commonwealth for an injunction or other process against any
24 person, partnership, copartnership, association, company,
25 corporation or other entity to restrain and prevent any of the
26 foregoing from transacting business as an agent or solicitor of
27 any insurance company, association or exchange or as an
28 insurance broker or as a manager or exclusive general agent of a
29 domestic insurance company, association or exchange without a
30 license whenever a license to engage in aforementioned
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1 activities is required by law and such licenses are issued by
2 the Insurance Commissioner.
3 (b) The action described in subsection (a) may also be
4 brought to restrain or prevent unlicensed activity as a
5 reinsurance intermediary in violation of Article VII or as a
6 managing general agent under Article VIII.
7 Section 11. Article VII of the act is repealed.
8 Section 12. The act is amended by adding articles to read:
9 ARTICLE VII
10 REINSURANCE INTERMEDIARIES
11 Section 701. Definitions.--The following words and phrases
12 when used in this article shall have, unless the context clearly
13 indicates otherwise, the meanings given to them in this section:
14 "Actuary" means an individual who has demonstrated to the
15 satisfaction of the Insurance Department that the individual has
16 the educational background necessary for the practice of
17 actuarial science.
18 "Commissioner" means the Insurance Commissioner of the
19 Commonwealth.
20 "Controlling person" means any person, firm, association or
21 corporation who directly or indirectly has the power to direct
22 or cause to be directed, the management, control or activities
23 of the reinsurance intermediary.
24 "Department" means the Insurance Department of the
25 Commonwealth.
26 "Insurer" means any person, firm, association or corporation
27 duly licensed in this Commonwealth pursuant to the applicable
28 provisions of the insurance law of the Commonwealth as an
29 insurer.
30 "Licensed producer" means an agent, broker or reinsurance
19910H1669B1966 - 10 -
1 intermediary licensed pursuant to the applicable provisions of
2 the insurance laws of the Commonwealth.
3 "Reinsurance intermediary" means a reinsurance intermediary-
4 broker or a reinsurance intermediary-manager as these terms are
5 defined in this section.
6 "Reinsurance intermediary-broker" or "RB" means any person,
7 other than an officer or employe of the ceding insurer, firm,
8 association or corporation who solicits, negotiates or places
9 reinsurance cessions or retrocessions on behalf of a ceding
10 insurer without the authority or power to bind reinsurance on
11 behalf of such insurer.
12 "Reinsurance intermediary-manager" or "RM" means any person,
13 firm, association or corporation who has authority to bind or to
14 manage all or part of the assumed reinsurance business of a
15 reinsurer (including the management of a separate division,
16 department or underwriting office) and acts as an agent for such
17 reinsurer whether known as an RM, manager or other similar term.
18 Notwithstanding the above, the following persons shall not be
19 considered an RM, with respect to such reinsurer, for the
20 purposes of this article:
21 (1) An employe of the reinsurer.
22 (2) A United States manager of the United States branch of
23 an alien reinsurer.
24 (3) An underwriting manager which, pursuant to contract,
25 manages all the reinsurance operations of the reinsurer, is
26 under common control with the reinsurer, subject to Article XII
27 of the act of May 17, 1921 (P.L.682, No.284), known as "The
28 Insurance Company Law of 1921," and whose compensation is not
29 based on the volume of premiums written.
30 (4) The manager of a group, association, pool or
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1 organization of insurers which engage in joint underwriting or
2 joint reinsurance and who are subject to examination by the
3 Insurance Commissioner of the state in which the manager's
4 principal business office is located.
5 "Reinsurer" means any person, firm, association or
6 corporation duly licensed in this Commonwealth pursuant to the
7 applicable provisions of the insurance laws of the Commonwealth
8 as an insurer with the authority to assume reinsurance.
9 "Retrocession" means the transaction whereby a reinsurer
10 cedes all or part of the reinsurance it has assumed to another
11 reinsurer.
12 "Qualified United States financial institution" means an
13 institution that meets all of the following:
14 (1) Is organized or (in the case of a United States office
15 of a foreign banking organization) licensed, under the laws of
16 the United States or any state thereof.
17 (2) Is regulated, supervised and examined by United States
18 Federal or state authorities having regulatory authority over
19 banks and trust companies.
20 (3) Has been determined by either the commissioner or the
21 Securities Valuation Office of the National Association of
22 Insurance Commissioners, to meet such standards of financial
23 condition and standing as are considered necessary and
24 appropriate to regulate the quality of financial institutions
25 whose letters of credit will be acceptable to the commissioner.
26 "To be in violation" means that the reinsurance intermediary,
27 insurer or reinsurer for whom the reinsurance intermediary was
28 acting failed to substantially comply with the provisions of
29 this article.
30 Section 702. Licensure.--(a) No person, firm, association
19910H1669B1966 - 12 -
1 or corporation shall act as an RB in this Commonwealth if the RB
2 maintains an office either directly or as a member or employe of
3 a firm or association, or an officer director or employe of a
4 corporation:
5 (1) in this Commonwealth, unless the RB is a licensed
6 producer in this Commonwealth; or
7 (2) in another state, unless the RB is a licensed producer
8 in this Commonwealth or another state having a law substantially
9 similar to this article or the RB is licensed in this
10 Commonwealth as a nonresident reinsurance intermediary.
11 (b) No person, firm, association or corporation shall act as
12 an RM:
13 (1) For a reinsurer domiciled in this Commonwealth, unless
14 the RM is a licensed producer in this Commonwealth.
15 (2) In this Commonwealth, if the RM maintains an office
16 either directly or as a member or employe of a firm or
17 association, or an officer, director or employe of a corporation
18 in this Commonwealth, unless the RM is a licensed producer in
19 this Commonwealth.
20 (3) In another state for a nondomestic insurer unless the RM
21 is a licensed producer in this Commonwealth or another state
22 having a law substantially similar to this article or the person
23 is licensed in this Commonwealth as a nonresident reinsurance
24 intermediary.
25 (c) The department may require an RM subject to subsection
26 (b) to:
27 (1) file a bond in an amount from an insurer acceptable to
28 the department for the protection of the reinsurer; and
29 (2) maintain an errors and omissions policy in an amount
30 acceptable to the department.
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1 (d) The department may issue a reinsurance intermediary
2 license to any person, firm, association or corporation who has
3 complied with the requirement of this article. Any such license
4 issued to a firm or association will authorize all the members
5 of such firm or association and any designated employes to act
6 as reinsurance intermediaries under the license, and all such
7 persons shall be named in the application and any supplements
8 thereto. Any such license issued to a corporation shall
9 authorize all of the officers, and any designated employes and
10 directors thereof to act as reinsurance intermediaries on behalf
11 of that corporation, and all such persons shall be named in the
12 application and any supplements thereto.
13 (e) The department may refuse to issue a reinsurance
14 intermediary license if in its judgment the applicant, anyone
15 named on the application, or any member, principal, officer or
16 director of the applicant is not trustworthy, or that any
17 controlling person of the applicant is not trustworthy to act as
18 a reinsurance intermediary, or that any of the foregoing has
19 given cause for revocation or suspension of a license or has
20 failed to comply with any prerequisite for the issuance of a
21 license. Upon written request therefor, the department shall
22 furnish a summary of the basis for refusal to issue a license,
23 which document shall be confidential and not subject to
24 disclosure to any other party by the department.
25 (f) Licensed attorneys at law of this Commonwealth when
26 acting in their professional capacity shall be exempt from this
27 section.
28 Section 703. Required Contract Provisions for Reinsurance
29 Intermediary-brokers.--Transactions between an RB and the
30 insurer it represents in such capacity shall only be entered
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1 into pursuant to a written authorization, specifying the
2 responsibilities of each party. The authorization shall, at a
3 minimum, contain provisions which provide as follows:
4 (1) The insurer may terminate the RB's authority at any
5 time.
6 (2) The RB will render accounts to the insurer accurately
7 detailing all material transactions, including information
8 necessary to support all commissions, charges and other fees
9 received by, or owing, to the RB and remit all funds due to the
10 insurer within thirty days of receipt.
11 (3) All funds collected for the insurer's account will be
12 held by the RB in a fiduciary capacity in a bank which is a
13 qualified United States financial institution.
14 (4) The RB will comply with section 704.
15 (5) The RB will comply with the written standards
16 established by the insurer for the cession or retrocession of
17 all risks.
18 (6) The RB will disclose to the insurer any relationship
19 with any reinsurer to which business will be ceded or
20 retroceded.
21 Section 704. Books and Records of Reinsurance Intermediary-
22 brokers.--(a) For at least three years after expiration of each
23 contract of reinsurance transacted by the RB with respect to
24 first party coverages and for at least ten years after
25 expiration of each contract of reinsurance transacted by the RB
26 with respect to all other coverages, the RB will keep a complete
27 record for each transaction showing all of the following:
28 (1) The type of contract, limits, underwriting restrictions,
29 classes or risks and territory.
30 (2) Period of coverage, including effective and expiration
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1 dates, cancellation provisions and notice required of
2 cancellation.
3 (3) Reporting and settlement requirements of balances.
4 (4) The rate used to compute the reinsurance premium.
5 (5) Names and addresses of assuming reinsurers.
6 (6) Rates of all reinsurance commissions, including the
7 commissions on any retrocessions handled by the RB.
8 (7) Related correspondence and memoranda.
9 (8) Proof of placement.
10 (9) Details regarding retrocessions handled by the RB
11 including the identity of retrocessionaires and percentage of
12 each contract assumed or ceded.
13 (10) Financial records, including but not limited to,
14 premium and loss accounts.
15 (11) When the RB procures a reinsurance contract on behalf
16 of a licensed ceding insurer:
17 (i) directly from any assuming reinsurer written evidence
18 that the assuming reinsurer has agreed to assume the risk; or
19 (ii) if placed through a representative of the assuming
20 reinsurer, other than an employe, written evidence that such
21 reinsurer has delegated binding authority to the representative.
22 (b) The insurer shall have access and the right to copy and
23 audit all accounts and records maintained by the RB related to
24 its business in a form usable by the insurer.
25 Section 705. Duties of Insurers Utilizing the Services of a
26 Reinsurance Intermediary-broker.--(a) An insurer shall not
27 engage the services of any person, firm, association or
28 corporation to act as an RB on its behalf unless such person is
29 licensed as required by section 702(a).
30 (b) An insurer may not employ an individual who is employed
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1 by an RB with which it transacts business, unless the RB is
2 under common control with the insurer and subject to Article XII
3 of the act of May 17, 1921 (P.L.682, No.284), known as "The
4 Insurance Company Law of 1921."
5 (c) The insurer shall annually obtain a copy of statements
6 of the financial condition of each RB with which it transacts
7 business.
8 Section 706. Required Contract Provisions for Reinsurance
9 Intermediary-managers.--Transactions between an RM and the
10 reinsurer it represents in such capacity shall only be entered
11 into pursuant to a written contract, specifying the
12 responsibilities of each party which shall be approved by the
13 reinsurer's board of directors. At least thirty days before such
14 reinsurer assumes or cedes business through such licensed
15 producer, a true copy of the approved contract shall be filed
16 with the department for approval. The contract shall, at a
17 minimum, contain the following provisions:
18 (1) The reinsurer may terminate the contract for cause upon
19 written notice to the RM. The reinsurer may suspend the
20 authority of the RM to assume or cede business during the
21 pendency of any dispute regarding the cause for termination.
22 (2) The RM will render accounts to the reinsurer accurately
23 detailing all material transactions, including information
24 necessary to support all commissions, charges and other fees
25 received by or owing to the RM, and remit all funds due under
26 the contract to the reinsurer on not less than a monthly basis.
27 (3) All funds collected for the reinsurer's account will be
28 held by the RM in a fiduciary capacity in a bank which is a
29 qualified United States financial institution. The RM may retain
30 no more than three months estimated claims payments and
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1 allocated loss adjustment expenses. The RM shall maintain a
2 separate bank account for each reinsurer that it represents.
3 (4) For at least three years after expiration of each
4 contract of reinsurance transacted by the RB with respect to
5 first party coverages and for at least ten years after
6 expiration of each contract of reinsurance transacted by the RB
7 with respect to all other coverages, the RB will keep a complete
8 record for each transaction showing all of the following:
9 (i) The type of contract, limits, underwriting restrictions,
10 classes or risks and territory.
11 (ii) Period of coverage, including effective and expiration
12 dates, cancellation provisions and notice required of
13 cancellation, and disposition of outstanding reserves on covered
14 risks.
15 (iii) Reporting and settlement requirements of balances.
16 (iv) Rate used to compute the reinsurance premium.
17 (v) Names and addresses of reinsurers.
18 (vi) Rates of all reinsurance commissions, including the
19 commissions on any retrocessions handled by the RM.
20 (vii) Related correspondence and memoranda.
21 (viii) Proof of placement.
22 (ix) Details regarding retrocessions handled by the RM, as
23 permitted by section 708(d), including the identity of
24 retrocessionaires and percentage of each contract assumed or
25 ceded.
26 (x) Financial records including, but not limited to, premium
27 and loss accounts.
28 (xi) When the RM places a reinsurance contract on behalf of
29 a ceding insurer:
30 (A) directly from any assuming reinsurer written evidence
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1 that the assuming reinsurer has agreed to assume the risk; or
2 (B) if placed through a representative of the assuming
3 reinsurer, other than an employe, written evidence that such
4 reinsurer has delegated binding authority to the representative.
5 (5) The reinsurer will have access and the right to copy all
6 accounts and records maintained by the RM related to its
7 business in a form usable by the reinsurer.
8 (6) The contract cannot be assigned in whole or in part by
9 the RM.
10 (7) The RM will comply with the written underwriting and
11 rating standards established by the insurer for the acceptance,
12 rejection or cession of all risks.
13 (8) Provisions setting forth the rates, terms and purposes
14 of commissions, charges and other fees which the RM may levy
15 against the reinsurer.
16 (9) If the contract permits the RM to settle claims on
17 behalf of the reinsurer the following shall apply:
18 (i) All claims will be reported to the reinsurer in a timely
19 manner.
20 (ii) A copy of the claim file will be sent to the reinsurer
21 at its request or as soon as it becomes known that the claim:
22 (A) has the potential to exceed the lesser of an amount
23 determined by the commissioner or the limit set by the
24 reinsurer;
25 (B) involves a coverage dispute;
26 (C) may exceed the RM's claims settlement authority;
27 (D) is open for more than six months; or
28 (E) is closed by payment of the lesser of an amount set by
29 the department or an amount set by the reinsurer.
30 (iii) All claim files will be the joint property of the
19910H1669B1966 - 19 -
1 reinsurer and RM. However, upon an order of liquidation of the
2 reinsurer such files shall become the sole property of the
3 reinsurer or its estate; the RM shall have reasonable access to
4 and the right to copy the files on a timely basis.
5 (iv) Any settlement authority granted to the RM may be
6 terminated for cause upon the reinsurer's written notice to the
7 RM or upon the termination of the contract. The reinsurer may
8 suspend the settlement authority during the pendency of the
9 dispute regarding the cause of termination.
10 (10) If the contract provides for a sharing of interim
11 profits by the RM, that such interim profits will not be paid
12 until one year after the end of each underwriting period for
13 property business and five years after the end of each
14 underwriting period for casualty business (or a later period set
15 by the department for specified lines of insurance) and not
16 until the adequacy of reserves on remaining claims has been
17 verified pursuant to section 708(c).
18 (11) The RM will annually provide the reinsurer with a
19 statement of its financial condition prepared by an independent
20 certified accountant.
21 (12) The reinsurer shall periodically (at least semi-
22 annually) conduct an onsite review of the underwriting and
23 claims processing operations of the RM.
24 (13) The RM will disclose to the reinsurer any relationship
25 it has with any insurer prior to ceding or assuming any business
26 with such insurer pursuant to this contract.
27 (14) The acts of the RM shall be deemed to be the acts of
28 the reinsurer on whose behalf it is acting.
29 Section 707. Prohibited Acts.--The RM shall not:
30 (1) Bind retrocessions on behalf of the reinsurer except
19910H1669B1966 - 20 -
1 that the RM may bind facultative retrocessions pursuant to
2 obligatory facultative agreements if the contract with the
3 reinsurer contains reinsurance underwriting guidelines for such
4 retrocessions. Such guidelines shall include a list of
5 reinsurers with which such automatic agreements are in effect,
6 and for each such reinsurer, the coverages and amounts or
7 percentages that may be reinsured, and commission schedules.
8 (2) Commit the reinsurer to participate in reinsurance
9 syndicates.
10 (3) Appoint any producer without assuring that the producer
11 is lawfully licensed to transact the type of reinsurance for
12 which he is appointed.
13 (4) Without prior approval of the reinsurer, pay or commit
14 the reinsurer to pay a claim, net of retrocessions, that exceeds
15 the lesser of an amount specified by the reinsurer or one per
16 centum of the reinsurer's policyholder's surplus as of December
17 31 of the last complete calendar year.
18 (5) Collect any payment from a retrocessionaire or commit
19 the reinsurer to any claim settlement with a retrocessionaire,
20 without prior approval of the reinsurer. If prior approval is
21 given, a report must be promptly forwarded to the reinsurer.
22 (6) Jointly employ an individual who is employed by the
23 reinsurer.
24 (7) Appoint a sub-RM.
25 Section 708. Duties of Reinsurers Utilizing the Services of
26 a Reinsurance Intermediary-Manager.--(a) A reinsurer shall not
27 engage the services of any person, firm, association or
28 corporation to act as an RM on its behalf unless such person is
29 licensed as required by section 702(b).
30 (b) The reinsurer shall annually obtain a copy of statements
19910H1669B1966 - 21 -
1 of the financial condition of each RM which such reinsurer has
2 engaged prepared by an independent certified accountant in a
3 form acceptable to the department.
4 (c) If an RM establishes loss reserves, the reinsurer shall
5 annually obtain the opinion of an actuary attesting to the
6 adequacy of loss reserves established for losses incurred and
7 outstanding on business produced by the RM. This opinion shall
8 be in addition to any other required loss reserve certification.
9 (d) Binding authority for all retrocessional contracts or
10 participation in reinsurance syndicates shall rest with an
11 officer of the reinsurer who shall not be affiliated with the
12 RM.
13 (e) Within thirty days of termination of a contract with an
14 RM, the reinsurer shall provide written notification of such
15 termination to the department.
16 (f) A reinsurer shall not appoint to its board of directors
17 any officer, director, employe, controlling shareholder or
18 subproducer of its RM. This subsection shall not apply to
19 relationships governed by Articles XI or XII of the act of May
20 17, 1921 (P.L.682, No.284), known as "The Insurance Company Law
21 of 1921."
22 Section 709. Examination Authority.--(a) A reinsurance
23 intermediary shall be subject to examination by the department.
24 The department shall have access to all books, bank accounts and
25 records of the reinsurance intermediary in a form usable by the
26 department.
27 (b) An RM may be examined as if it were the reinsurer.
28 Section 710. Penalties and Liability.--(a) A reinsurance
29 intermediary, insurer or reinsurer found by the commissioner,
30 after a hearing conducted in accordance with 2 Pa.C.S. (relating
19910H1669B1966 - 22 -
1 to administrative law and procedure), to be in violation of any
2 provision of this article, shall:
3 (1) for each separate violation, pay a civil penalty in an
4 amount not exceeding five thousand dollars ($5,000);
5 (2) be subject to revocation or suspension of its license;
6 and
7 (3) if a violation was committed by the reinsurance
8 intermediary such reinsurance intermediary shall make
9 restitution to the insurer, reinsurer, rehabilitator or
10 liquidator of the insurer or reinsurer for the net losses
11 incurred by the insurer or reinsurer attributable to such
12 violation.
13 (b) The decision, determination or order of the commissioner
14 pursuant to subsection (a) shall be subject to judicial review
15 pursuant to 2 Pa.C.S.
16 (c) Nothing contained in this section shall affect the right
17 of the commissioner to impose any other penalties provided in
18 the insurance laws of the Commonwealth.
19 (d) Nothing contained in this article is intended to or
20 shall in any manner limit or restrict the rights of
21 policyholders, claimants, creditor or other third parties or
22 confer any rights to such persons.
23 ARTICLE VIII
24 MANAGING GENERAL AGENTS
25 Section 801. Definitions.--The following words and phrases
26 when used in this article shall have, unless the context clearly
27 indicates otherwise, the meanings given to them in this section:
28 "Actuary" means an individual who has demonstrated to the
29 satisfaction of the Insurance Department that the individual has
30 the educational background necessary for the practice of
19910H1669B1966 - 23 -
1 actuarial science.
2 "Commissioner" means the Insurance Commissioner of the
3 Commonwealth.
4 "Department" means the Insurance Department of the
5 Commonwealth.
6 "Insurer" means any company, association or exchange
7 authorized by the Insurance Commissioner to transact the
8 business of insurance in this Commonwealth, except that it shall
9 not include agencies, authorities or instrumentalities of the
10 United States, its possessions and territories, the Commonwealth
11 of Puerto Rico, the District of Columbia, or a state or
12 political subdivision of a state.
13 "Managing general agent" or "MGA" means:
14 (1) Any person, firm, association or corporation who
15 negotiates and binds ceding reinsurance contracts on behalf of
16 an insurer or manages all or part of the insurance business of
17 an insurer (including the management of a separate division,
18 department or underwriting office) and acts as an agent for such
19 insurer whether known as a managing general agent, manager or
20 other similar term, who, with or without the authority either
21 separately or together with affiliates, produces, directly or
22 indirectly, and underwrites an amount of gross direct written
23 premium equal to or more than five per centum of the
24 policyholder surplus as reported in the last annual statement of
25 the insurer in any one quarter or year together with one or more
26 of the following:
27 (i) adjusts or pays claims in excess of an amount determined
28 by the Insurance Department; or
29 (ii) negotiates reinsurance on behalf of the insurer.
30 (2) Notwithstanding paragraph (1), the following persons
19910H1669B1966 - 24 -
1 shall not be considered as managing general agents for the
2 purposes of this article:
3 (i) an employe of the insurer;
4 (ii) a United States manager of the United States branch of
5 an alien insurer;
6 (iii) an underwriting manager which, pursuant to contract,
7 manages all the insurance operations of the insurer, is under
8 common control with the insurer, subject to Article XII of the
9 act of May 17, 1921 (P.L.682, No.284), known as "The Insurance
10 Company Law of 1921," and whose compensation is not based on the
11 volume of premiums written;
12 (iv) the attorney-in-fact authorized by and acting for the
13 subscribers of a reciprocal insurer or inter-insurance exchange
14 under powers of attorney.
15 "Producer" means an agent, broker or reinsurance intermediary
16 licensed pursuant to the applicable provisions of the insurance
17 laws of the Commonwealth.
18 "Retrocession" means the transaction whereby a reinsurer
19 cedes all or part of the reinsurance it has assumed to another
20 reinsurer.
21 "Underwrite" means the authority to accept or reject risk on
22 behalf of the insurer.
23 Section 802. Licensure.--(a) No person, firm, association
24 or corporation shall act in the capacity of an MGA with respect
25 to risks located in this Commonwealth for an insurer licensed in
26 this Commonwealth unless such person is a licensed producer in
27 this Commonwealth.
28 (b) No person, firm, association or corporation shall act in
29 the capacity of an MGA representing an insurer domiciled in this
30 Commonwealth with respect to risks located outside this
19910H1669B1966 - 25 -
1 Commonwealth unless that person is licensed as a producer in
2 this Commonwealth. This license may be a nonresident license
3 issued under this article.
4 (c) The department may require a bond in an amount
5 acceptable to it for the protection of the insurer.
6 (d) The department may require the MGA to maintain an errors
7 and omissions policy.
8 Section 803. Required Contract Provisions.--No person, firm,
9 association or corporation acting in the capacity of an MGA
10 shall place business with an insurer unless there is in force a
11 written contract between the parties which sets forth the
12 responsibilities of each party and where both parties share
13 responsibility for a particular function, specifies the division
14 of such responsibilities, and which contains the following
15 minimum provisions:
16 (1) The insurer may terminate the contract for cause upon
17 written notice to the MGA. The insurer may suspend the
18 underwriting authority of the MGA during the pendency of any
19 dispute regarding the cause for termination.
20 (2) The MGA will render accounts to the insurer detailing
21 all transactions and remit all funds due under the contract to
22 the insurer on not less than a monthly basis.
23 (3) All funds collected for the account of an insurer will
24 be held by the MGA in a fiduciary capacity in a bank which is a
25 member of the Federal Reserve System. This account shall be used
26 for all payments on behalf of the insurer. The MGA may retain no
27 more than three months estimated claims payments and allocated
28 loss adjustment expenses.
29 (4) Separate records of business written by the MGA will be
30 maintained. The insurer shall have access and the right to copy
19910H1669B1966 - 26 -
1 all accounts and the records related to its business in a form
2 usable by the insurer and the department shall have access to
3 all books, bank accounts and records of the MGA in a form usable
4 to the department. These records shall be retained according to
5 the laws pertaining to the conduct of examinations.
6 (5) The contract may not be assigned in whole or part by the
7 MGA.
8 (6) Appropriate underwriting guidelines, including all of
9 the following:
10 (i) The maximum annual premium volume.
11 (ii) The basis of the rates to be charged.
12 (iii) The types of risks which may be written.
13 (iv) Maximum limits of liability.
14 (v) Applicable exclusions.
15 (vi) Territorial limitations.
16 (vii) Policy cancellation provisions.
17 (viii) The maximum policy period.
18 (7) The insurer shall have the right to cancel or nonrenew
19 any policy of insurance subject to the applicable laws and
20 regulations concerning the cancellation and nonrenewal of
21 insurance policies.
22 (8) If the contract permits the MGA to settle claims on
23 behalf of the insurer the following shall apply:
24 (i) All claims must be reported to the company in a timely
25 manner.
26 (ii) A copy of the claim file shall be sent to the insurer
27 at its request or as soon as it becomes known that the claim:
28 (A) has the potential to exceed an amount determined by the
29 commissioner or exceeds the limit set by the company, whichever
30 is less;
19910H1669B1966 - 27 -
1 (B) involves a coverage dispute;
2 (C) may exceed the MGA's claims settlement authority;
3 (D) is open for more than six months; or
4 (E) is closed by payment of an amount set by the department
5 or an amount set by the company, whichever is less.
6 (iii) All claim files shall be the joint property of the
7 insurer and the MGA. However, upon an order of liquidation of
8 the insurer such files shall become the sole property of the
9 insurer or its estate. The MGA shall have reasonable access to
10 and the right to copy the files on a timely basis.
11 (iv) Any settlement authority granted to the MGA may be
12 terminated for cause upon the insurer's written notice to the
13 MGA or upon the termination of the contract. The insurer may
14 suspend the settlement authority during the pendency of any
15 dispute regarding the cause for termination.
16 (9) When electronic claims files are in existence, the
17 contract must address the timely transmission of the data.
18 (10) If the contract provides for a sharing of interim
19 profits by the MGA, and the MGA has the authority to determine
20 the amount of the interim profits by establishing loss reserves
21 or controlling claim payments, or in any other manner, interim
22 profits will not be paid to the MGA until one year after they
23 are earned for property insurance business and five years after
24 they are earned on casualty business and not until the profits
25 have been verified pursuant to section 805.
26 Section 804. Prohibited Acts.--An MGA shall not:
27 (1) Bind reinsurance or retrocessions on behalf of the
28 insurer except that the MGA may bind facultative reinsurance
29 contracts pursuant to obligatory facultative agreements if the
30 contract with the insurer contains reinsurance underwriting
19910H1669B1966 - 28 -
1 guidelines, including, for both reinsurance assumed and ceded, a
2 list of reinsurers with which such automatic agreements are in
3 effect, the coverages and amounts or percentages that may be
4 reinsured and the commission schedules.
5 (2) Commit the insurer to participate in insurance or
6 reinsurance syndicates.
7 (3) Appoint any producer without assuring that the producer
8 is lawfully licensed to transact the type of insurance for which
9 he is appointed.
10 (4) Without prior approval of the insurer, pay or commit the
11 insurer to pay a claim over a specified amount, net of
12 reinsurance, which shall not exceed one per centum of the
13 insurer's policyholder's surplus as of December 31 of the last
14 completed calendar year.
15 (5) Collect any payment from a reinsurer or commit the
16 insurer to any claim settlement with a reinsurer, without prior
17 approval of the insurer. If prior approval is given, a report
18 must be promptly forwarded to the insurer.
19 (6) Permit its subproducer to serve on the insurer's board
20 of directors.
21 (7) Jointly employ an individual who is employed with the
22 insurer.
23 (8) Appoint a sub-MGA.
24 Section 805. Duties of Insurers.--(a) The insurer shall
25 have on file an independent financial examination, in a form
26 acceptable to the department, of each MGA with which it has done
27 business.
28 (b) If an MGA establishes loss reserves, the insurer shall
29 annually obtain the opinion of an actuary attesting to the
30 adequacy of loss reserves established for losses incurred and
19910H1669B1966 - 29 -
1 outstanding on business produced by the MGA. This is in addition
2 to any other required loss reserve certification.
3 (c) The insurer shall periodically, at least semiannually,
4 conduct an onsite review of the underwriting and claims
5 processing operations of the MGA.
6 (d) Binding authority for all reinsurance contracts or
7 participation in insurance or reinsurance syndicates shall rest
8 with an officer of the insurer, who shall not be affiliated with
9 the MGA.
10 (e) Within thirty days of entering into or termination of a
11 contract with an MGA, the insurer shall provide written
12 notification of such appointment or termination to the
13 department. Notices of appointment of an MGA shall include a
14 statement of duties which the applicant is expected to perform
15 on behalf of the insurer, the lines of insurance for which the
16 applicant is to be authorized to act and any other information
17 the commissioner may request.
18 (f) An insurer shall review its books and records each
19 quarter to determine if any producer has become, by operation of
20 section 801, an MGA as defined in that section. If the insurer
21 determines that a producer has become an MGA, the insurer shall
22 promptly notify the producer and the department of such
23 determination and the insurer and producer must fully comply
24 with the provisions of this article within thirty days.
25 (g) An insurer shall not appoint to its board of directors
26 an officer, director, employe, subproducer or controlling
27 shareholder of its MGAs. This subsection shall not apply to
28 relationships governed by Article XI or XII of the act of May
29 17, 1921 (P.L.682, No.284), known as "The Insurance Company Law
30 of 1921."
19910H1669B1966 - 30 -
1 Section 806. Examination Authority.--The acts of the MGA are
2 considered to be the acts of the insurer on whose behalf it is
3 acting. An MGA may be examined as if it were the insurer in
4 accordance with the law pertaining to the conduct of
5 examinations.
6 Section 807. Penalties and Liability.--(a) If the
7 commissioner finds after a hearing conducted in accordance with
8 2 Pa.C.S. (relating to administrative law and procedure) that
9 any person has violated any provision of this article, the
10 commissioner may order:
11 (1) for each separate violation, a civil penalty not to
12 exceed five thousand dollars ($5,000);
13 (2) revocation or suspension of the producer's license; and
14 (3) the MGA to reimburse the insurer, the rehabilitator or
15 liquidator of the insurer for any losses incurred by the insurer
16 caused by a violation of this article committed by the MGA.
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 for
22 in the insurance laws of this 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 and auditors.
26 ARTICLE IX
27 EXAMINATIONS
28 Section 901. Purpose.--The purpose of this article is to
29 provide an effective and efficient system for examining the
30 activities, operations, financial condition and affairs of all
19910H1669B1966 - 31 -
1 persons transacting the business of insurance in this
2 Commonwealth and all persons otherwise subject to the
3 jurisdiction of the department. The provisions of this article
4 are intended to enable the department to adopt a flexible system
5 of examinations which directs resources as may be deemed
6 appropriate and necessary for the administration of the
7 insurance and insurance related laws of this Commonwealth.
8 Section 902. Definitions.--The following words and phrases
9 when used in this article shall have, unless the context clearly
10 indicates otherwise, the meanings given to them in this section:
11 "Commissioner" means the Insurance Commissioner of the
12 Commonwealth.
13 "Company" means any person engaging in or proposing or
14 attempting to engage in any transaction or kind of insurance or
15 surety business and any person or group of persons who may
16 otherwise be subject to the administrative or regulatory
17 authority of the Insurance Department.
18 "Department" means the Insurance Department of the
19 Commonwealth.
20 "Examiner" means any individual or firm having been
21 authorized by the Insurance Department to conduct an examination
22 under this article.
23 "Insurer" means any individual, corporation, association,
24 partnership, reciprocal exchange, inter-insurer, Lloyds insurer,
25 fraternal benefit society, beneficial association and any other
26 legal entity engaged in the business of insurance, including
27 agents, brokers and adjusters and also means health care plans
28 as defined in 40 Pa.C.S. Chs. 61 (relating to hospital plan
29 corporations), 63 (relating to professional health services plan
30 corporations), 65 (relating to fraternal benefit societies) and
19910H1669B1966 - 32 -
1 67 (relating to beneficial societies) and the act of December
2 29, 1972 (P.L.1701, No.364), known as the "Health Maintenance
3 Organization Act." For purposes of this article, health care
4 plans, fraternal benefit societies and beneficial societies
5 shall be deemed to be engaged in the business of insurance.
6 "Person" means any individual, aggregation of individuals,
7 trust, association, partnership or corporation or any affiliate
8 thereof. The term shall exclude agents.
9 Section 903. Authority, Scope and Scheduling of
10 Examinations.--(a) Every company or person subject to
11 examination in accordance with this act must keep all books,
12 records, accounts, papers, documents and any or all computer or
13 other recordings relating to its property, assets, business and
14 affairs in such manner and for such time periods as the
15 department, in its discretion, may require in order that its
16 authorized representatives may readily verify the financial
17 condition of the company or person and ascertain whether the
18 company or person has complied with the laws of this
19 Commonwealth.
20 (b) The department or any of its examiners may conduct an
21 examination under this article of any company as often as the
22 commissioner in his sole discretion deems appropriate but shall,
23 at a minimum, conduct an examination of every insurer licensed
24 in this Commonwealth not less frequently than once every five
25 years. In scheduling and determining the nature, scope and
26 frequency of the examinations, the commissioner shall consider
27 such matters as the results of financial statement analyses and
28 ratios, changes in management or ownership, actuarial opinions,
29 reports of independent certified public accountants and other
30 criteria as set forth in an examiners' handbook adopted by a
19910H1669B1966 - 33 -
1 national association of insurance commissioners and in effect
2 when the commissioner exercises discretion under this
3 subsection.
4 (c) For purposes of completing an examination of any company
5 under this article, the department may examine or investigate
6 any person, or the business of any person, insofar as such
7 examination or investigation is, in the sole discretion of the
8 commissioner, necessary or material to the examination of the
9 company.
10 (d) In lieu of an examination under this article of any
11 foreign or alien insurer licensed in this Commonwealth, the
12 department may accept an examination report on such company as
13 prepared by the insurance department for the company's state of
14 domicile or port-of-entry state until January 1, 1994.
15 Thereafter, such reports may only be accepted if:
16 (1) the insurance department of the other state was at the
17 time of the examination accredited under a national association
18 of insurance commissioners accreditation program; or
19 (2) the examination is performed under the supervision of an
20 accredited insurance department with the participation of one or
21 more examiners who are employed by that department and who,
22 after a review of the examination work papers and report, state
23 under oath that the examination was performed in a manner
24 consistent with the standards and procedures required by their
25 insurance department.
26 Section 904. Conduct of Examinations.--(a) Upon determining
27 that an examination should be conducted, the commissioner or his
28 designee shall issue an examination warrant appointing one or
29 more examiners to perform the examination and instructing them
30 as to the scope of the examination. In conducting the
19910H1669B1966 - 34 -
1 examination, the examiner shall observe those guidelines and
2 procedures set forth in an examiners' handbook adopted by a
3 national association of insurance commissioners. The department
4 may also employ such other guidelines or procedures as it may
5 deem appropriate.
6 (b) Every company or person from whom information is sought,
7 its officers, directors and agents must provide to the examiners
8 appointed under subsection (a) timely, convenient and free
9 access at all reasonable hours at its offices to all books,
10 records, accounts, papers, documents and any or all computer or
11 other recordings relating to the property, assets, business and
12 affairs of the company being examined. The officers, directors,
13 employes and agents of the company or person must facilitate
14 such examination and aid in such examination so far as it is in
15 their power to do so. The refusal of any company, by its
16 officers, directors, employes or agents, to submit to
17 examination or to comply with any reasonable written request of
18 the examiners shall be grounds for suspension or refusal of, or
19 nonrenewal of any license or authority held by the company to
20 engage in an insurance or other business subject to the
21 department's jurisdiction. Any such proceedings for suspension,
22 revocation or refusal of any license or authority shall be
23 conducted pursuant to 2 Pa.C.S. (relating to administrative law
24 and procedure).
25 (c) The commissioner or any of his examiners shall have the
26 power to issue subpoenas, to administer oaths and to examine
27 under oath any person as to any matter pertinent to the
28 examination. Upon the failure or refusal of any person to obey a
29 subpoena, the department may petition a court of competent
30 jurisdiction, and upon proper showing, the court may enter any
19910H1669B1966 - 35 -
1 order compelling the witness to appear and testify or produce
2 documentary evidence. Failure to obey the court order shall be
3 punishable as contempt of court.
4 (d) When making an examination under this article, the
5 department may retain attorneys, appraisers, independent
6 actuaries, independent certified public accountants or other
7 professionals and specialists as examiners, the cost of which
8 shall be borne by the company which is the subject of the
9 examination.
10 (e) Nothing contained in this article shall be construed to
11 limit the department's authority to terminate or suspend any
12 examination in order to pursue other legal or regulatory action
13 pursuant to the insurance laws of this Commonwealth. Findings of
14 fact and conclusions made pursuant to any examination shall be
15 prima facie evidence in any legal or regulatory action.
16 (f) Nothing contained in this article shall be construed to
17 limit the department's authority to use and, if appropriate, to
18 make public any final or preliminary examination report, any
19 examiner or company workpapers or other documents, or any other
20 information discovered or developed during the course of any
21 examination in the furtherance of any legal or regulatory action
22 which the commissioner may, in his sole discretion, deem
23 appropriate.
24 Section 905. Examination Reports.--(a) All examination
25 reports shall be comprised of only facts appearing upon the
26 books, records, or other documents of the company, its agents or
27 other persons examined, or as ascertained from the testimony of
28 its officers or agents or other persons examined concerning its
29 affairs, and such conclusions and recommendations as the
30 examiners find reasonably warranted from such facts.
19910H1669B1966 - 36 -
1 (b) No later than sixty days following completion of the
2 examination, the examiner in charge shall file with the
3 department a verified written report of examination under oath.
4 Upon receipt of the verified report, the department shall
5 transmit the report to the company examined, together with a
6 notice which shall afford such company examined a reasonable
7 opportunity of not more than thirty days to make a written
8 submission or rebuttal with respect to any matters contained in
9 the examination report.
10 (c) Within thirty days of the end of the period allowed for
11 the receipt of written submissions or rebuttals, the
12 commissioner or his designee shall fully consider and review the
13 report, together with any written submissions or rebuttals and
14 any relevant portions of the examiner's workpapers and enter an
15 order:
16 (1) adopting the examination report as filed or with
17 modification or corrections. If the examination report reveals
18 that the company is operating in violation of any law,
19 regulation or prior order of the department, the commissioner
20 may order the company to take any action the commissioner
21 considers necessary and appropriate to cure such violation;
22 (2) rejecting the examination report with directions to the
23 examiners to reopen the examination for purposes of obtaining
24 additional data, documentation or information, and refiling
25 pursuant to subsection (a); or
26 (3) calling for an investigatory hearing with no less than
27 twenty days' notice to the company for purposes of obtaining
28 additional documentation, data, information and testimony.
29 (d) (1) All orders entered pursuant to subsection (c)(1)
30 shall be accompanied by findings and conclusions resulting from
19910H1669B1966 - 37 -
1 the commissioner's consideration and review of the examination
2 report, relevant examiner workpapers and any written submissions
3 or rebuttals. Any such order shall be considered a final
4 administrative decision and may be appealed to the commissioner
5 pursuant to 2 Pa.C.S. (relating to administrative law and
6 procedure), and shall be served upon the company by certified
7 mail, together with a copy of the adopted examination report.
8 Within thirty days of the issuance of the adopted report, the
9 company shall file affidavits executed by each of its directors
10 stating under oath that they have received a copy of the adopted
11 report and related orders.
12 (2) Any hearing conducted under subsection (c)(3) by the
13 department or its authorized representative, shall be conducted
14 as a nonadversarial confidential investigatory proceeding as
15 necessary for the resolution of any inconsistencies,
16 discrepancies or disputed issues apparent upon the face of the
17 filed examination report or raised by or as a result of the
18 department's review of relevant workpapers or by the written
19 submission or rebuttal of the company. Within twenty days of the
20 conclusion of any such hearing, the commissioner shall enter an
21 order pursuant to subsection (c)(1).
22 (3) The commissioner shall not appoint an examiner as an
23 authorized representative to conduct the hearing. The hearing
24 shall proceed expeditiously with discovery by the company
25 limited to the examiner's workpapers which tend to substantiate
26 any assertions set forth in any written submission or rebuttal.
27 The commissioner or his representative may issue subpoenas for
28 the attendance of any witnesses or the production of any
29 documents deemed relevant to the investigation whether under the
30 control of the department, the company or other persons. The
19910H1669B1966 - 38 -
1 documents produced shall be included in the record and testimony
2 taken by the commissioner or his representative shall be under
3 oath and preserved for the record.
4 (4) The hearing shall proceed with the commissioner or his
5 designee posing questions to the persons subpoenaed. Thereafter
6 the company and the department may present testimony relevant to
7 the investigation. Cross examination shall be conducted only by
8 the commissioner or his designee. The company and the department
9 shall be permitted to make closing statements and may be
10 represented by counsel of their choice.
11 (5) Nothing contained in this section shall require the
12 department to disclose any information or records which would
13 indicate or show the existence or content of any investigation
14 or activity of a criminal justice agency.
15 (e) (1) Upon the adoption of the examination report under
16 subsection (c)(1), the department shall continue to hold the
17 content of the examination report as private and confidential
18 information for a period of thirty days except to the extent
19 provided in subsection (b). Thereafter, the department may open
20 the report for public inspection so long as no court of
21 competent jurisdiction has stayed its publication.
22 (2) Nothing contained in this article shall prevent or be
23 construed as prohibiting the commissioner from disclosing the
24 content of an examination report, preliminary examination report
25 or results, or any matter relating thereto, to the Insurance
26 Department of this or any other state or country, or to law
27 enforcement officials of this or any other state or agency of
28 the Federal Government at any time, so long as such agency or
29 office receiving the report or matters relating thereto agrees
30 in writing to hold it confidential and in a manner consistent
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1 with this article.
2 (3) In the event the department determines that regulatory
3 action is appropriate as a result of any examination, it may
4 initiate any proceedings or actions as provided by law.
5 (f) All working papers, recorded information, documents and
6 copies thereof produced by, obtained by or disclosed to the
7 department or any other person in the course of an examination
8 made under this article shall be given confidential treatment
9 and are not subject to subpoena and may not be made public by
10 the department or any other person, except to the extent
11 provided in subsection (e). Access may also be granted to a
12 national association of insurance commissioners. Such parties
13 must agree in writing prior to receiving the information to
14 provide to it the same confidential treatment as required by the
15 act of June 21, 1957 (P.L.390, No.212), referred to as the
16 Right-to-Know Law, unless the prior written consent of the
17 company to which it pertains has been obtained.
18 Section 906. Conflict of Interest.--(a) No examiner may be
19 appointed by the commissioner if such examiner, either directly
20 or indirectly, has a conflict of interest or is affiliated with
21 the management of or owns a pecuniary interest in any person
22 subject to examination under this article. This section shall
23 not be construed to automatically preclude an examiner from
24 being:
25 (1) a policyholder or claimant under an insurance policy;
26 (2) a grantor of a mortgage or similar instrument on such
27 examiner's residence to a regulated entity if done under
28 customary terms and in the ordinary course of business;
29 (3) an investment owner in shares of regulated diversified
30 investment companies; or
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1 (4) a settlor or beneficiary of a "blind trust" into which
2 any otherwise impermissible holdings have been placed.
3 (b) Notwithstanding the requirements of this section, the
4 department may retain from time to time, on an individual basis,
5 qualified actuaries, certified public accountants or other
6 similar individuals who are independently practicing their
7 professions, even though these persons may from time to time be
8 similarly employed or retained by persons subject to examination
9 under this article.
10 Section 907. Cost of Examinations.--All the expenses
11 incurred in and about the examination of any company, including
12 compensation of department employes assisting in said
13 examination and any other professionals or specialists retained
14 in accordance with section 904(d), shall be charged to and paid
15 by the company examined in such manner as the commissioner shall
16 by regulation prescribe.
17 Section 908. Immunity from Liability.--(a) No cause of
18 action shall arise nor shall any liability be imposed against
19 the commissioner, the commissioner's authorized representatives
20 or any examiner appointed by the commissioner for any statements
21 made or conduct performed in good faith while carrying out the
22 provisions of this article.
23 (b) No cause of action shall arise, nor shall any liability
24 be imposed against any person for the act of communicating or
25 delivering information or data to the commissioner, his
26 authorized representative or examiner or the department pursuant
27 to an examination made under this article, if such act of
28 communication or delivery was performed in good faith and
29 without fraudulent intent or the intent to deceive.
30 (c) This section does not abrogate or modify in any way any
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1 common law or statutory privilege or immunity heretofore enjoyed
2 by any person identified in subsection (a).
3 (d) A person identified in subsection (a) shall be entitled
4 to an award of attorney fees and costs if he is the prevailing
5 party in a civil cause of action for libel, slander or any other
6 relevant tort arising out of his activities in carrying out the
7 provisions of this article and the party bringing the action was
8 not substantially justified in doing so. For purposes of this
9 section a proceeding is "substantially justified" if it had a
10 reasonable basis in law or fact at the time that it was
11 initiated.
12 Section 13. Managers and exclusive general agents licensed
13 in accordance with section 651 of the act and subject to the
14 provisions of Article VIII, as added by this amendatory act,
15 shall be required to comply with Article VIII upon renewal of
16 their existing license or upon the effective date of this act,
17 whichever occurs later.
18 Section 14. All acts and parts of acts are repealed insofar
19 as they are inconsistent with this act.
20 Section 15. This act shall take effect in 120 days.
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