| (I) a provision that the controlled insurer may terminate
the contract for cause, upon written notice to the controlling producer.
The controlled insurer must suspend the authority of the controlling
producer to write business during the pendency of any dispute regarding
the cause for the termination;
(II) a provision that the controlling producer render
accounts to the controlled insurer detailing all material transactions,
including information necessary to support all commissions, charges,
and other fees received by, or owing to, the controlling producer;
(III) a provision that the controlling producer remit
all funds due under the terms of the contract to the controlled insurer
on at least a monthly basis. The due date must be fixed so that the
premiums or installments collected are remitted no later than 90 days
after the effective date of any policy placed with the controlled
insurer under this contract;
(IV) a provision that all funds collected for the controlled
insurer's account must be held by the controlling producer in a fiduciary
capacity, in one or more appropriately identified bank accounts in
banks that are members of the Federal Reserve System;
(V) a provision that the controlling producer maintain
separately identifiable records of business written for the controlled
insurer;
(VI) a provision that the contract not be assigned
in whole or in part by the controlling producer;
(VII) a provision that the controlled insurer provide
the controlling producer with its underwriting standards, rules, procedures,
manuals setting forth the rates to be charged, and the conditions
for the acceptance or rejection of risks. The controlling producer
must adhere to the standards, rules, procedures, rates, and conditions.
The standards, rules, procedures, rates, and conditions must be the
same as those applicable to comparable business placed with the controlled
insurer by a producer other than the controlling producer;
(VIII) a provision establishing the rate and terms
of the controlling producer's commissions, charges, or other fees
and the purposes for those charges or fees. The rates of the commissions,
charges, and other fees must be no greater than those applicable to
comparable business placed with the controlled insurer by producers
other than controlling producers. For purposes of this subclause and
subclause (VII) of this clause, examples of "comparable business"
include the same lines of insurance, same kinds of insurance, same
kinds of risks, similar policy limits, and similar quality of business;
(IX) a provision that, if the contract provides that
the controlling producer, on insurance business placed with the insurer,
is to be compensated contingent upon the insurer's profits on that
business, the compensation must not be determined and paid until at
least five years after the premiums on liability insurance are earned
and at least one year after the premiums are earned on any other insurance.
No commissions may be paid until the adequacy of the controlled insurer's
reserves on remaining claims has been independently verified;
(X) a provision limiting the controlling producer's
writings in relation to the controlled insurer's surplus and total
writings. The controlled insurer may establish a different limit for
each line or subline of business. The controlled insurer must notify
the controlling producer when the applicable limit is approached and
must not accept business from the controlling producer if the limit
is reached. The controlling producer must not place business with
the controlled insurer if it has been notified by the controlled insurer
that the limit has been reached; and
(XI) a provision that the controlling producer may
negotiate but must not bind reinsurance on behalf of the controlled
insurer on business the controlling producer places with the controlled
insurer, except that the controlling producer may bind facultative
reinsurance contracts pursuant to obligatory facultative agreements
if the contract with the controlled insurer contains underwriting
guidelines including, for both reinsurance assumed and ceded, a list
of reinsurers with which the automatic agreements are in effect, the
coverages and amounts or percentages that may be reinsured, and commission
schedules.
(ii) Audit committee. Every controlled insurer must
have an audit committee of the board of directors composed of independent
directors. The audit committee must annually meet with management,
the controlled insurer's independent certified public accountants,
and an independent casualty actuary or other independent loss reserve
specialist acceptable to the commissioner to review the adequacy of
the controlled insurer's loss reserves.
(iii) Reporting requirements.
(I) In addition to any other required loss reserve
certification, the controlled insurer must annually, on April 1 of
each year, file with the commissioner an opinion of an independent
casualty actuary, or other independent loss reserve specialist acceptable
to the commissioner, reporting loss ratios for each line or subline
of business written and attesting to the adequacy of loss reserves
established for losses incurred and outstanding as of year-end, including
incurred but not reported losses, on business placed by the controlling
producer.
(II) The controlled insurer must annually report to
the commissioner in its registration statement filed under §7.203(g)
of this title the amount of commissions paid to the controlling producer,
the percentage the amount represents of the net premium written, and
comparable amounts and percentages paid to noncontrolling producers
for placements of the same kinds of insurance.
(iv) Disclosure requirements. The controlling producer,
prior to the effective date of the policy, must deliver written notice
to the prospective insured disclosing the relationship between the
controlling producer and the controlled insurer, except that, if the
business is placed through a subproducer who is not a controlling
producer, the controlling producer must retain in the records a signed
commitment from the subproducer that the subproducer is aware of the
relationship between the controlled insurer and the controlling producer
and that the subproducer has notified or will notify the insured.
(2) The contract referred to in paragraph (1)(B)(i)
of this subsection does not provide to or expand any rights or privileges
of a controlling producer, including, but not limited to, authority
to place or write business, that do not otherwise exist or could not
otherwise be exercised under the laws of the State of Texas or another
state.
(p) A producer controlled insurer is subject to all
the provisions of the Act absent a determination that the laws of
its domiciliary state are substantially similar as provided by the
Act, §823.014.
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| Source Note: The provisions of this §7.205 adopted to be effective January 1, 1976; amended to be effective November 30, 1984, 9 TexReg 5926; amended to be effective April 29, 1988, 13 TexReg 1761; amended to be effective April 13, 1992, 17 TexReg 2273; amended to be effective December 24, 1993, 18 TexReg 9310; amended to be effective July 14, 1994, 19 TexReg 5098; amended to be effective May 15, 1996, 21 TexReg 3798; amended to be effective May 5, 2002, 27 TexReg 3559; amended to be effective May 26, 2013, 38 TexReg 3033 |
