Code Section Group

Insurance Code - INS

DIVISION 1. GENERAL RULES GOVERNING INSURANCE [100 - 1879.8]

  ( Division 1 enacted by Stats. 1935, Ch. 145. )

PART 2. THE BUSINESS OF INSURANCE [680 - 1879.8]

  ( Part 2 enacted by Stats. 1935, Ch. 145. )

CHAPTER 6.5. Reinsurance Intermediaries [1781.1 - 1781.14]
  ( Chapter 6.5 added by Stats. 1991, Ch. 1009, Sec. 1. )

1781.1.
  

This chapter shall be known and may be cited as the Reinsurance Intermediary Act.

(Added by Stats. 1991, Ch. 1009, Sec. 1.)

1781.2.
  

As used in this chapter:

(a) “Actuary” means a person who is a member in good standing of the American Academy of Actuaries, the Casualty Actuarial Society, or the Society of Actuaries, and is qualified to sign statements of actuarial opinion on loss reserves.

(b) “Controlling person” means any person, firm, association, or corporation who directly or indirectly has the power to direct or cause to be directed, the management, control, or activities of a reinsurance intermediary.

(c) “Insurer” means any person, firm, association, or corporation admitted by the commissioner as an insurer in this state.

(d) “Licensed producer” means a licensed insurance agent, broker, or reinsurance intermediary.

(e) “Qualified United States financial institution” means an institution that meets all of the following criteria:

(1) Is organized or (in the case of a domestic office of a foreign banking organization) licensed, under the laws of the United States or any state thereof.

(2) Is regulated, supervised, and examined by federal or state authorities having regulatory authority over banks and trust companies.

(3) Has been determined by either the commissioner or the Securities Valuation Office of the National Association of Insurance Commissioners, to meet standards of financial condition and standing as are considered necessary and appropriate to regulate the quality of financial institutions whose letters of credit will be acceptable to the commissioner.

(f) “Reinsurance intermediary” means a reinsurance intermediary-broker or a reinsurance intermediary-manager.

(g) “Reinsurance intermediary-broker” means any person, other than an officer or employee of the ceding insurer, firm, association, or corporation that solicits, negotiates, or places reinsurance cessions or retrocessions on behalf of a ceding insurer without the authority or power to bind reinsurance on behalf of that insurer.

(h) “Reinsurance intermediary-manager” means any person, firm, association, or corporation that has authority to bind, or manages all or part of the assumed reinsurance business of, a reinsurer (including the management of a separate division, department, or underwriting office) and acts as an agent for the reinsurer whether known as a reinsurance intermediary-manager, manager, or other similar term. However, “reinsurance intermediary-manager” does not include any of the following:

(1) An employee of the reinsurer.

(2) A domestic manager of a United States branch of an alien reinsurer.

(3) An underwriting manager that, pursuant to contract, manages all or any portion of the reinsurance operations of the reinsurer, that is under common control with the reinsurer, that is subject to Article 4.7 (commencing with Section 1215) of Chapter 2, and the compensation of which is not based on the volume of premiums written.

(4) The manager of a group, association, pool, or organization of insurers which engage in joint underwriting or joint reinsurance and that are subject to examination by the insurance regulatory agency or official of the state in which the manager’s principal business office is located.

(i) “Reinsurer” means any person, firm, association, or corporation admitted in this state as an insurer with the authority to assume reinsurance.

(j) “Violation” means the failure of a reinsurance intermediary, or an insurer or reinsurer for whom the reinsurance intermediary was acting, to comply with any provision of this chapter.

(Added by Stats. 1991, Ch. 1009, Sec. 1.)

1781.3.
  

(a) No person, firm, association, or corporation shall act as a reinsurance intermediary-broker in this state unless licensed as follows:

(1) If the reinsurance intermediary-broker maintains an office, (either directly or as a member or employee of a firm or association, or an officer, director, or employee of a corporation) in this state, the reinsurance intermediary-broker shall be a licensed producer in this state.

(2) If the reinsurance intermediary-broker does not maintain an office in this state, the reinsurance intermediary-broker shall be a licensed producer in this state or another state having a law substantially similar to this chapter or shall be licensed in this state as a nonresident reinsurance intermediary.

(3) Unless denied licensure pursuant to subdivision (e), a nonresident person shall receive a reinsurance intermediary-broker license if all of the following requirements are met:

(A) The person is currently licensed and in good standing in the state, territory of the United States, or province of Canada where he or she is licensed as a resident reinsurance intermediary-broker.

(B) The person has submitted the proper request for licensure and has paid the fees required by paragraph (3) of subdivision (d).

(C) The person has submitted or transmitted to the commissioner the application for licensure that the person submitted to the state, territory of the United States, or province of Canada where he or she is licensed as a resident, or submitted or transmitted to the commissioner a completed National Association of Insurance Commissioners Uniform Nonresident Application.

(D) The state, territory of the United States, or province of Canada where the person holds a resident reinsurance intermediary-broker license awards nonresident reinsurance intermediary-broker licenses to residents of this state on the same basis.

(b) A person, firm, association, or corporation shall not act as a reinsurance intermediary-manager:

(1) For a reinsurer domiciled in this state, unless the reinsurance intermediary-manager is a licensed producer in this state.

(2) In this state, if the reinsurance intermediary-manager maintains an office either directly or as a member or employee of a firm or association, or as an officer, director, or employee of a corporation in this state, unless the reinsurance intermediary-manager is a licensed producer in this state.

(3) In another state for a nondomestic admitted insurer, unless the reinsurance intermediary-manager is a licensed producer in this state or in another state having a law substantially similar to this chapter or the person is licensed in this state as a nonresident reinsurance intermediary.

(4) Unless denied licensure pursuant to subdivision (e), a nonresident person shall receive a reinsurance intermediary-manager license if all of the following requirements are met:

(A) The person is currently licensed and in good standing in the state, territory of the United States, or province of Canada where he or she is licensed as a resident reinsurance intermediary-manager.

(B) The person has submitted the proper request for licensure and has paid the fees required by paragraph (3) of subdivision (d).

(C) The person has submitted or transmitted to the commissioner the application for licensure that the person submitted to the state, territory of the United States, or province of Canada where he or she is licensed as a resident, or submitted or transmitted to the commissioner a completed National Association of Insurance Commissioners Uniform Nonresident Application.

(D) The state, territory of the United States, or province of Canada where the person holds a resident reinsurance intermediary-manager license awards nonresident reinsurance intermediary-manager licenses to residents of this state on the same basis.

(c) The commissioner may require a reinsurance intermediary-manager subject to subdivision (b) to do both of the following:

(1) File a fidelity bond issued by an admitted surety in an amount determined by the commissioner for the protection of the reinsurer.

(2) Maintain an errors and omissions policy in an amount acceptable to the commissioner.

(d) (1) The commissioner may issue a reinsurance intermediary license to any person, firm, association, or corporation that has complied with the applicable requirements of this chapter. This license, when issued to a firm or association, authorizes all the members of the firm or association and any designated employees to act as reinsurance intermediaries under the license, and all these persons shall be named in the application and any supplements thereto. This license, when issued to a corporation, authorizes all of the officers, and any designated employees and directors thereof to act as reinsurance intermediaries on behalf of the corporation, and all these persons shall be named in the application and any supplements thereto.

(2) Any application for licensure as a reinsurance intermediary under this subdivision shall be made on a form prescribed by the commissioner and shall be accompanied by an application fee of three hundred seventy-four dollars ($374).

(e) The commissioner may refuse to issue a reinsurance intermediary license if, in his or her judgment, the applicant, any person named on the application, or any member, principal, officer, or director of the applicant, is determined by the commissioner not to be trustworthy, or that any controlling person of the applicant is not trustworthy to act as a reinsurance intermediary, or that any of the foregoing has given cause for revocation or suspension of a reinsurance intermediary license, or has failed to comply with any prerequisite for the issuance of a license. Upon written request therefor, the commissioner shall furnish the applicant with a summary of the basis for refusal to issue a reinsurance intermediary license, which document shall not be subject to inspection as a public record.

(f) Licensed attorneys at law when acting in their professional capacity as such shall be exempt from this section.

(g) A reinsurance intermediary-manager, when acting in that capacity and in compliance with this chapter, shall not be required to separately comply with Article 5.4 (commencing with Section 769.80) of Chapter 1 (if added by Senate Bill 1039 of the 1991–92 Regular Session) in order to engage in conduct authorized by both this chapter and that article.

(Amended by Stats. 2017, Ch. 534, Sec. 48. (AB 1699) Effective January 1, 2018.)

1781.4.
  

Transactions between a reinsurance intermediary-broker and the insurer it represents in that capacity shall only be entered into pursuant to a written authorization specifying the responsibilities of each party. The authorization shall, at a minimum, contain provisions specifying all of the following rights and obligations:

(a) The insurer may terminate the reinsurance intermediary-broker’s authority at any time.

(b) The reinsurance intermediary-broker shall render accounts to the insurer accurately detailing all material transactions, including information necessary to support all commissions, charges, and other fees received by, or owing to, the reinsurance intermediary-broker, and remit all funds due to the insurer within 30 days of receipt.

(c) All funds collected for the insurer’s account will be held by the reinsurance intermediary-broker in a fiduciary capacity in a bank which is a qualified United States financial institution.

(d) The reinsurance intermediary-broker will comply with Section 1781.5.

(e) The reinsurance intermediary-broker will comply with written standards established by the insurer for the cession or retrocession of all insured risks.

(f) The reinsurance intermediary-broker will disclose to the insurer any relationship with any reinsurer to which insured risk will be ceded or retroceded.

(Added by Stats. 1991, Ch. 1009, Sec. 1.)

1781.5.
  

(a) For at least 10 years after expiration of each contract of reinsurance transacted by a reinsurance intermediary-broker, the reinsurance intermediary-broker shall keep a complete record for each transaction, including all of the following:

(1) The type of contract, limits, underwriting restriction, classes or risks, and territory.

(2) The period of coverage, including effective and expiration dates, cancellation provisions, and the notice required for cancellation.

(3) Reporting and settlement requirements for balances.

(4) The rate used to compute the reinsurance premium.

(5) The names and addresses of assuming reinsurers.

(6) The rates of all reinsurance commissions, including the commissions on any retrocession, handled by the reinsurance intermediary-broker.

(7) Related correspondence and memoranda.

(8) Proof of placement.

(9) Details regarding retrocession handled by the reinsurance intermediary-brokers, including the identity of retrocessionaires and the percentage of each contract assumed or ceded.

(10) Financial records, including, but not limited to, premium and loss accounts.

(11) If the reinsurance intermediary-broker procures a reinsurance contract on behalf of an admitted ceding insurer directly from the assuming reinsurer, the record of the transaction shall include written evidence that the assuming reinsurer has agreed to assume the risk. If the reinsurance intermediary-broker procures a reinsurance contract on behalf of an admitted ceding insurer that is placed through a representative of the assuming reinsurer, other than an employee thereof, the record of the transaction shall include written evidence that the reinsurer has delegated binding authority to the representative.

(b) The insurer shall have access and the right to copy and audit all accounts and records maintained by the reinsurance intermediary-broker related to its business in a form usable by the insurer.

(Added by Stats. 1991, Ch. 1009, Sec. 1.)

1781.6.
  

(a) An insurer shall not engage the services of any person, firm, association, or corporation to act as a reinsurance intermediary-broker on its behalf unless the person is licensed as required by subdivision (a) of Section 1781.3.

(b) An insurer may not employ an individual who is employed by a reinsurance intermediary-broker with which it transacts business unless the reinsurance intermediary-broker is under common control with the insurer and subject to Article 4.7 (commencing with Section 1215) of Chapter 2.

(c) The insurer shall annually obtain a copy of statements of the financial condition of each reinsurance intermediary-broker with which it transacts business.

(Added by Stats. 1991, Ch. 1009, Sec. 1.)

1781.7.
  

Transactions between a reinsurance intermediary-manager and the reinsurer it represents in that capacity shall only be entered into pursuant to a written contract specifying the responsibilities of each party, which shall be approved by the reinsurers’s board of directors. Before a reinsurer assumes or cedes business through such a producer, a true copy of the approved contract shall be filed with the commissioner. The contract shall, at a minimum, contain provisions setting forth the following terms and conditions:

(a) The reinsurer may terminate the contract for cause upon written notice to the reinsurance intermediary-manager. The reinsurer may suspend the authority of the reinsurance intermediary-manager to assume or cede business during the pendency of any dispute regarding the cause for termination.

(b) The reinsurance intermediary-manager shall, not less than quarterly, render calendar-year-basis and underwriting-year-basis accounts to the reinsurer accurately detailing all material transactions, including information necessary to support all commissions, charges, and other fees received by, or owing to, the reinsurance intermediary-manager, and shall remit all funds due under the contract to the reinsurer on not less than a quarterly basis.

(c) All funds collected for the reinsurer’s account shall be held by the reinsurance intermediary-manager in a fiduciary capacity in a bank the accounts of which are insured by an agency or instrumentality of the United States. The reinsurance intermediary-manager may retain no more than three months’ estimated claims payment and allocated loss adjustment expenses. Unless the funds held for each reinsurer by the reinsurance intermediary-manager in the fiduciary account are reasonably and readily ascertainable from its books of account and records, and the bank’s books of account and records, the reinsurance intermediary-manager shall maintain a separate bank account for each reinsurer that it represents. Notwithstanding the foregoing, the reinsurance intermediary-manager shall maintain a separate bank account for each reinsurer that it represents that is in receivership or liquidation or that the commissioner determines to be in an impaired financial condition.

(d) For at least 10 years after expiration of each contract of reinsurance transacted by the reinsurance intermediary-manager, the reinsurance intermediary-manager shall keep a complete record for each transaction showing all of the following:

(1) The type of contract, limits, underwriting restrictions, classes or risks, and territory.

(2) The period of coverage, including effective and expiration dates, cancellation provisions and notice required for cancellation, and disposition of outstanding reserves on covered risks.

(3) The reporting and settlement requirements with respect to balances.

(4) The rate used to compute the reinsurance premium.

(5) The names and addresses of reinsurers.

(6) The rates of all reinsurance commissions, including the commissions on any retrocessions handled by the reinsurance intermediary-manager.

(7) Related correspondence and memoranda.

(8) Proof of placement.

(9) Details regarding retrocessions handled by the reinsurance intermediary-manager, as permitted by subdivision (d) of Section 1781.9, including the identity of retrocessionaires and the percentage of each contract assumed or ceded.

(10) Financial records, including, but not limited to, premium and loss accounts.

(11) If the reinsurance intermediary-manager places a reinsurance contract on behalf of a ceding insurer directly from the assuming reinsurer, written evidence that the assuming reinsurer has agreed to assume the risk. If the reinsurance intermediary-manager procures a reinsurance contract on behalf of an admitted ceding insurer that is placed through a representative of the assuming insurer, other than an employee thereof, written evidence that the reinsurer has delegated binding authority to the representative.

(e) The reinsurer shall have access and the right to copy all accounts and records maintained by the reinsurance intermediary-manager related to its business in a form usable by the reinsurer.

(f) The contract cannot be assigned in whole or in part by the reinsurance intermediary-manager.

(g) The reinsurance intermediary-manager shall comply with the written underwriting and rating standards established by the insurer for the acceptance, rejection, or cession of all risks.

(h) The contract shall set forth the rates, terms, and purposes of commissions, charges, and other fees that the reinsurance intermediary-manager may levy against the reinsurer.

(i) If the contract permits the reinsurance intermediary-manager to settle claims on behalf of the reinsurer, it shall contain all of the following provisions:

(1) All claims shall be reported to the reinsurer in a timely manner.

(2) A copy of the claim file shall be sent to the reinsurer at its request or as soon as it becomes known that any of the following applies to the claim:

(A) The claim has the potential to exceed the lesser of an amount determined by the commissioner or the limit set by the reinsurer.

(B) The claim involves a coverage dispute.

(C) The claim may exceed the reinsurance intermediary-manager’s claims settlement authority.

(D) The claim is open for more than six months, unless the reinsurer agrees in writing to waive this requirement, in which event the reinsurance intermediary-manager shall annually provide the reinsurer with an exhibit identifying and describing each open claim.

(3) All claim files shall be joint property of the reinsurer and the reinsurer intermediary-manager. However, upon an order of liquidation of the reinsurer, these files shall become the sole property of the reinsurer or its estate, except when the reinsurance intermediary-manager is also managing the claim files for other reinsurers. In that event, the reinsurance intermediary-manager shall simultaneously and immediately provide the liquidator with copies of all the claim files. With respect to claim files pertaining solely to a reinsurer in liquidation, the reinsurance intermediary-manager shall have reasonable access to and the right to copy the files on a timely basis.

(4) Any settlement authority granted to the reinsurance intermediary-manager may be terminated for cause upon the reinsurer’s written notice to the reinsurance intermediary-manager or upon the termination of the contract. The reinsurer may suspend the settlement authority during the pendency of the dispute regarding the cause of termination.

(j) If the contract provides for a sharing of interim profits by the reinsurance intermediary-manager, interim profits shall not be paid until one year after the end of each underwriting period for property business and five years after the end of each underwriting period for casualty business, or a later period set by the commissioner for specified lines of insurance, and not until the adequacy of reserves on remaining claims has been verified pursuant to subdivision (c) of Section 1781.9.

(k) The reinsurance intermediary-manager shall annually provide the reinsurer with a statement of its financial condition prepared by an independent certified accountant and annually shall provide the reinsurer with a certification from an independent certified public accountant that the reinsurance intermediary-manager’s allocations of premiums and losses to the reinsurer have been made on a timely and proper basis.

(l) The reinsurer shall periodically and at least semiannually conduct an onsite review of the underwriting and claims processing operations of the reinsurance intermediary-manager.

(m) The reinsurance intermediary-manager shall disclose to the reinsurer any relationship it has with any insurer prior to ceding or assuming any business with the insurer pursuant to the contract.

(n) Within the scope of its actual or apparent authority, the acts of the reinsurance intermediary-manager shall be deemed to be the acts of the reinsurer on whose behalf it is acting.

(Amended by Stats. 2006, Ch. 538, Sec. 458. Effective January 1, 2007.)

1781.8.
  

The reinsurance intermediary-manager shall not do any of the following:

(a) Directly or indirectly receive any compensation for the placement of retrocessions on behalf of the reinsurer.

(b) Bind any retrocession which would increase the contractual limit made available to the reinsurance intermediary-manager by the reinsurer. However, the reinsurance intermediary-manager may bind retrocessions which reduce or limit the commitments made on behalf of the reinsurer by the reinsurance intermediary-manager. The reinsurance intermediary-manager shall promptly inform the reinsurer of the terms, conditions, and retrocessionaires of such a retrocession arranged for its account.

(c) Commit the reinsurer to participate in reinsurance syndicates.

(d) Appoint any producer without assuring that the producer is lawfully licensed to transact the type of reinsurance for which he or she is appointed.

(e) Without prior approval of the reinsurer, pay or commit the reinsurer to pay a claim, net of retrocessions, that exceeds the lesser of an amount specified by the reinsurer or 1 percent of the reinsurer’s policyholders’ surplus as of December 31 of the last complete calendar year.

(f) Collect any payment from a retrocessionaire or commit the reinsurer to any claim settlement with a retrocessionaire, without prior approval of the reinsurer. If prior approval is given, a report must be promptly forwarded to the reinsurer.

(g) Jointly employ an individual who is employed by the reinsurer, unless the reinsurance intermediary-manager is under common control with the reinsurer that is subject to Article 4.7 (commencing with Section 1215) of Chapter 2.

(h) Appoint a subreinsurance intermediary-manager.

(Added by Stats. 1991, Ch. 1009, Sec. 1.)

1781.9.
  

(a) A reinsurer shall not engage the services of any person, firm, association, or corporation to act as a reinsurance intermediary-manager on its behalf, unless the person is licensed as required by subdivision (b) of Section 1781.3.

(b) A reinsurer shall annually obtain a copy of statements of the financial condition of each reinsurance intermediary-manager which the reinsurer has engaged prepared by an independent certified accountant in a form acceptable to the commissioner.

(c) If a reinsurance intermediary-manager establishes loss reserves, the reinsurer shall annually obtain the opinion of an actuary attesting to the adequacy of loss reserves or losses incurred on the business produced by the reinsurance intermediary manager. This opinion shall be in addition to any other required loss reserve certification. For purposes of this section, a reinsurance intermediary-manager shall not be considered as establishing loss reserves when the reinsurance intermediary-manager only utilizes loss reserves which are the reinsurer’s share of loss reserves established by the ceding insurer, provided that the ceding insurer has obtained the opinion of an actuary attesting to the adequacy of loss reserves established for losses incurred and outstanding on business produced by the reinsurance intermediary-manager.

(d) Binding authority for participation in reinsurance syndicates shall rest with an officer of the reinsurer who shall not be affiliated with the reinsurance intermediary-manager.

(e) Within 30 days of termination of a contract with a reinsurance intermediary-manager, the reinsurer shall provide written notification of the termination to the commissioner.

(f) A reinsurer shall not appoint to its board of directors, any officer, director, employee, controlling shareholder, or subproducer of its reinsurance intermediary-manager. This subdivision shall not apply to relationships governed by Article 4.7 (commencing with Section 1215) of Chapter 2.

(Added by Stats. 1991, Ch. 1009, Sec. 1.)

1781.10.
  

(a) A reinsurance intermediary shall be subject to examination by the commissioner. The commissioner shall have access to all books, bank accounts, and records of each reinsurance intermediary in a form usable to the commissioner.

(b) A reinsurance intermediary-manager may be examined as if it were the reinsurer.

(c) All documents and information disclosed in connection with the examination of a reinsurance intermediary may be used by the commissioner and shall be given confidential treatment by the commissioner to the same extent as provided in Section 735.5 for documents and information disclosed in connection with the examination of an insurer.

(d) An examination shall be at the expense of the reinsurance intermediary. The commissioner may revoke the license of the reinsurance intermediary for a refusal to promptly pay the examination expense when due.

(Amended by Stats. 2006, Ch. 321, Sec. 4. Effective January 1, 2007.)

1781.11.
  

(a) A reinsurance intermediary, insurer, or reinsurer found by the commissioner to be in violation of this chapter, after a hearing conducted in accordance with Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code by an administrative law judge either chosen under Section 11502 of the Government Code or appointed by the commissioner, shall be subject to all of the following:

(1) For each separate violation, a penalty in an amount not exceeding five thousand dollars ($5,000).

(2) Be subject to revocation or suspension of its license or certificate of authority.

(b) Nothing contained in this section shall affect the right of the commissioner to impose or issue any other penalties or orders authorized by law.

(c) Nothing contained in this chapter shall in any manner limit or restrict the rights of policyholders, claimants, creditors, or other third parties or confer any rights upon those persons or otherwise limit any other authority required or authorized to be exercised under this code by the commissioner.

(Added by Stats. 1991, Ch. 1009, Sec. 1.)

1781.12.
  

The commissioner may adopt reasonable rules and regulations for the implementation and administration of this chapter.

(Added by Stats. 1991, Ch. 1009, Sec. 1.)

1781.13.
  

No insurer or reinsurer may continue to utilize the services of a reinsurance intermediary on and after January 1, 1992, unless utilization is in compliance with this chapter.

(Added by Stats. 1991, Ch. 1009, Sec. 1.)

1781.14.
  

(a) A reinsurance intermediary shall comply with any order of a court of competent jurisdiction or a duly constituted arbitration panel requiring the production of nonprivileged documents by the reinsurance intermediary, or the testimony of an employee or other individual otherwise under control of the reinsurance intermediary with respect to any reinsurance transaction for which it acted as a reinsurance intermediary.

(b) Compliance with subdivision (a) shall be subject to the right of the reinsurance intermediary and the parties to the transaction to object to the court or arbitration panel concerning the nature or scope of the documents or testimony or the time within which it must comply with the order. Failure to comply with the order shall be deemed to be a material noncompliance with this chapter.

(Added by Stats. 2006, Ch. 321, Sec. 5. Effective January 1, 2007.)

INSInsurance Code - INS