H. B. 2887
(By Delegates H. White, Hrutkay and R. M. Thompson)
[Introduced
February 6, 2003
; referred to the
Committee on Banking and Insurance then the Judiciary.]
A BILL to amend and reenact sections one, two, three, four, six and
seven, article thirty-seven, chapter thirty-three of the code
of West Virginia, one thousand nine hundred thirty-one, as
amended; to further amend article thirty-seven, by adding
thereto two new sections, designated sections eight and nine,
all relating to providing the article with a short title;
refining definitions; treating the licensing and authority of
managing general agents; and increasing the authority of the
Commissioner, including the authority to order penalties in an
amount not exceeding ten thousand dollars for a violation of
the article.
Be it enacted by the Legislature of West Virginia:
That sections one, two, three, four, six and seven, article
thirty-seven, chapter thirty-three of the code of West Virginia,
one thousand nine hundred thirty-one, as amended, be amended and reenacted; and that said article be further amended by adding
thereto two new sections, designated sections eight and nine, all
to read as follows:
ARTICLE 37. MANAGING GENERAL AGENTS.
§33-37-1. Definitions.
For the purposes of this article:
(a) "Actuary" means a person who is a member in good standing
of the American academy of actuaries.
(b) "Home state" means the District of Columbia and any state
or territory of the United States in which a managing general agent
is incorporated, or maintains its principal place of business. If
neither the state in which the managing general agent is
incorporated, nor the state in which it maintains its principal
place of business has adopted this article, or a substantially
similar law governing managing general agents, the managing general
agent may declare another state, in which it conducts business, to
be its "home state."
(b) (c) "Insurer" means any person, firm, association or
corporation
engaged as indemnitor, surety or contractor in the
business of entering into contracts of insurance or of annuities as
limited to: duly licensed in this state as an insurance company
pursuant to article three of this chapter.
(1) Any insurer who is doing an insurance business, or has
transacted insurance in this state, and against whom claims arising from that transaction may exist now or in the future:
(2) This includes, Insurer includes but is not limited to, any
domestic insurer as defined in section six, article one of this
chapter and any foreign insurer as defined in section seven,
article one of this chapter, including any stock insurer, mutual
insurer, reciprocal insurer, farmers' mutual fire insurance
company, fraternal benefit society, hospital service corporation,
medical service corporation, dental service corporation, health
service corporation, health care corporation, health maintenance
organization, captive insurance company or risk retention group.
(c) "Managing general agent" means any person, firm,
association or corporation who negotiates and binds ceding
reinsurance contracts on behalf of an insurer or manages all or
part of the insurance business of an insurer, including the
management of a separate division, department or underwriting
office, and acts as an agent for such insurer whether known as a
managing general agent, manager or other similar term, who, with or
without the authority, either separately or together with
affiliates, produces, directly or indirectly, and underwrites an
amount of gross direct written premium equal to or greater than
five percent of the policyholder surplus as reported in the last
annual statement of the insurer in any one quarter or year,
together with one or more of the following:
(1) Adjusts or pays claims in excess of an amount determined by the commissioner; or
(2) Negotiates reinsurance on behalf of the insurer.
Notwithstanding the preceding provision, the following persons
are not to be considered as managing general agents for the
purposes of this article:
(1) An employee of the insurer;
(2) A United States manager of the United States branch of an
alien insurer;
(3) An underwriting manager that, pursuant to contract,
manages all or part of the insurance operations of the insurer, is
under common control with the insurer, is subject to the holding
company regulatory act, and whose compensation is not based on the
volume of premiums written without regard to the profitability of
the business written;
(4) The attorney-in-fact authorized by and acting for the
subscribers of a reciprocal insurer or inter-insurance exchange
under powers of attorney
(d) "Managing general agent" (MGA) means any person, firm,
association or corporation who:
(1) Manages all or part of the insurance business of an
insurer (including the management of a separate division,
department or underwriting office); and
(2) Acts as an agent for such insurer whether known as a
managing general agent, manager or other similar term, who, with or without the authority, either separately or together with
affiliates, produces, directly or indirectly, and underwrites an
amount of gross direct written premium equal to or more than five
percent of the policyholder surplus as reported in the last annual
statement of the insurer in any one quarter or year together with
one or more of the following activities related to the business
produced:
(A) Adjusts or pays claims in excess of ten thousand dollars
per claim; or
(B) Negotiates reinsurance on behalf of the insurer.
(3) Notwithstanding the above, the following persons are not
be considered managing general agents for the purposes of this
article:
(A) An employee of the insurer;
(B) A U.S. manager of the United States branch of an alien
insurer;
(C) An underwriting manager which, pursuant to contract,
manages all or part of the insurance operations of the insurer, is
under common control with the insurer, subject to the holding
company regulatory act, and whose compensation is not based on the
volume of premiums written; and
(D) The attorney in fact authorized by and acting for the
subscribers of a reciprocal insurer or inter insurance exchange
under powers of attorney.
(e) "Person" means an individual or a business entity.
(d) (f) "Underwrite" means
the authority to accept or reject
risk on behalf of the insurer.
as authorized by the insurer.
§33-37-2. Licensure.
(a) Any person, or a person working for a firm, association or
corporation, shall not act in the capacity of a managing general
agent with respect to risks located in this state for an insurer
licensed in this state unless such person is licensed and appointed
as an agent of the insurer in this state.
(b) Any person, or a person working for a firm, association or
corporation, shall not act in the capacity of a managing general
agent representing an insurer domiciled in this state with respect
to risks located outside this state unless such person is licensed
and appointed as an agent of the insurer in this state. The license
held by such person may be a nonresident license.
(c) The commissioner may require a bond in an amount
acceptable to him or her for the protection of the insurer.
(d) The commissioner may require the managing general agent to
maintain an errors and omissions policy of liability insurance.
(a) No domestic insurer may permit a person to act, and no
person may act, in the capacity of a managing general agent for an
insurer domiciled in this state unless the person is licensed in
this state to act as a managing general agent.
(b) No foreign or alien insurer may permit a person to act, and no person may act, in the capacity of a managing general agent
representing an insurer unless the person is licensed in this state
to act as a managing general agent.
(c) No person may act in the capacity of a managing general
agent with respect to risks located in this state for an insurer
licensed in this state unless the person is a licensed insurance
producer in this state.
(d) The commissioner may license as a managing general agent
any individual or business entity that has complied with the
requirements of this article and any regulations concerning
licensure that may be promulgated by the commissioner. The
commissioner may refuse to issue a license, subject to the right of
the applicant to demand a hearing on the application, if the
commission believes the applicant, any person named on the
application, or any member, principal, officer or director of the
applicant is not trustworthy or competent to act as a managing
general agent, or that any of the foregoing has given cause for
revocation or suspension of the license, or has failed to comply
with any prerequisite for issuance of the license.
(e) Any person seeking a license pursuant to subsection (a) or
subsection (b) of this section shall apply for the license in a
form acceptable to the commissioner, and shall pay to the
commissioner a nonrefundable application fee in an amount
prescribed by the commissioner. The fee shall be not less than five hundred dollars and not more than one thousand dollars. Every
licensed managing general agent shall pay to the commissioner a
nonrefundable annual renewal fee in an amount prescribed by the
commissioner. The fee shall be not less than two hundred dollars
and not more than one thousand dollars. Between the first day of
May and the first day of June of the renewal year, each licensed
managing general agent shall submit to the commissioner a renewal
application form and fee in the manner and form prescribed by the
commissioner. All fees shall be collected by the commissioner,
paid into the state treasury, and placed to the credit of the
special revenue account as provided in section thirteen, article
three of this chapter. Each license and renewed license expires at
midnight on the thirtieth day of June next following the day of
issuance.
(f) The commissioner may require a bond in an amount
acceptable to him or her for the protection of the insurer.
(g) The commissioner may require a managing general agent to
maintain an errors and omissions policy that is acceptable to the
commissioner.
(h) Except where prohibited by state or federal law, by
submitting an application for license, the applicant has appointed
the secretary of state as the agent for service of process on the
applicant in any action or proceeding arising in this state out of
or in connection with the exercise of the license. The appointment of the secretary of state as agent for service of process is
irrevocable during the period within which a cause of action
against the applicant may arise out of transactions with respect to
subjects of insurance in this state. Service of process on the
Secretary of State shall conform to the provisions of section
twelve, article four of this chapter.
(i) A person seeking licensure shall provide evidence, in a
form acceptable to the commissioner, of its appointments or
contracts as a managing general agent. The commissioner may refuse
to renew the license of a person that has not been appointed by, or
otherwise authorized to act for, an insurer as a managing general
agent.
§33-37-3. Required contract provisions.
Any No person,
or a person working for a firm, association or
corporation acting in the capacity of a managing general agent
shall not may place business with an insurer unless there is in
force a written contract between the parties which sets forth the
responsibilities of each party and,
whereby where both parties
share responsibility for a particular function, which specifies the
division of such responsibilities, and which contains the following
minimum provisions:
(a) The insurer may terminate the contract for cause upon
written notice to the managing general agent. The insurer may
suspend the underwriting authority of the managing general agent during the pendency of any dispute regarding the cause for
termination;
(b) The managing general agent will render accounts to the
insurer detailing all transactions and remit all funds due under
the contract to the insurer on not less than a monthly basis;
(c) All funds collected for the account of an insurer will be
held by the managing general agent in a fiduciary capacity
in a
bank which is a member of the federal reserve system with a FDIC
insured financial institution. This account shall be used for all
payments on behalf of the insurer. The managing general agent may
retain no more than three months estimated claims payments and
allocated loss adjustment expenses;
(d)
The managing general agent shall maintain separate
Separate records of business
written by the managing general agent
will be maintained that he or she writes. The insurer shall have
access to and the right to copy all accounts and records related to
its business in a form usable by it,
The and the commissioner shall
have access to all books, bank accounts and records of the managing
general agent in a form usable to
him or her the commissioner;
(e) The contract may not be assigned, in whole or part, by the
managing general agent;
(f) The contract shall contain appropriate underwriting
guidelines including:
(f) Appropriate underwriting guidelines including:
(1) The maximum annual premium volume;
(2) The basis of the rates to be charged;
(3) The types of risks which may be written;
(4) Maximum limits of liability;
(5) Applicable exclusions;
(6) Territorial limitations;
(7) Policy cancellation provisions; and
(8) The maximum policy period.
The insurer shall have the right to cancel or non renew any
policy of insurance subject to the applicable laws and rules
concerning the cancellation and non renewal of insurance policies;
(g) If the contract permits the managing general agent to
settle claims on behalf of the insurer:
(1) All claims must be reported to the company in a timely
manner;
and
(2) A copy of the claim file will be sent to the insurer at
its request or as soon as it becomes known that the claim:
(A) Has the potential to exceed an amount determined by the
commissioner or exceeds the limit set by the company; whichever is
less;
(B) Involves a coverage dispute;
(C) May exceed the managing general agents claims settlement
authority;
(D) Is open for more than six months; or
(E) Is closed by payment of an amount set by the commissioner
or an amount set by the company, whichever is less;
(3) All claim files will be the joint property of the insurer
and managing general agent. However, upon an order of liquidation
of the insurer, such files shall become the sole property of the
insurer or its estate. The managing general agent shall have
reasonable access to and the right to copy the files on a timely
basis;
(4) Any settlement authority granted to the managing general
agent may be terminated for cause upon the insurer's written notice
to the managing general agent or upon the termination of the
contract. The insurer may suspend the settlement authority during
the pendency of any dispute regarding the cause for termination.
(h)
If Where electronic claims files are in existence, the
contract must address the timely transmission of the data
contained
in such files;
(i) If the contract provides for a sharing of interim profits
by the managing general agent, and the managing general agent has
the authority to determine the amount of the interim profits by
establishing loss reserves or controlling claim payments, or in any
other manner, interim profits will not be paid to the managing
general agent until one year after they are earned for property
insurance business and five years after they are earned on casualty
business and not until the profits have been verified pursuant to section five of this article;
(j) The managing general agent may use only advertising
material pertaining to the business issued by an insurer that has
been approved in writing by the insurer in advance of its use;
(j)(k) The managing general agent shall not:
(1) Bind reinsurance or retrocessions on behalf of the
insurer, except that the managing general agent may bind
facultative reinsurance contracts pursuant to obligatory
facultative agreements if the contract with the insurer contains
reinsurance underwriting guidelines including, for both reinsurance
assumed and ceded, a list of reinsurers with which such automatic
agreements are in effect, the coverages and amounts or percentages
that may be reinsured and commission schedules;
(2) Commit the insurer to participate in insurance or
reinsurance syndicates;
(3) Appoint any agent producer without assuring that the agent
producer is lawfully licensed to transact the type of insurance for
which he or she is appointed;
(4) Without prior approval of the insurer, pay or commit the
insurer to pay a claim over a specified amount, net of reinsurance,
which shall not exceed one percent of the insurer's policyholder's
surplus as of the thirty-first day of December of the last
completed calendar year;
(5) Collect any payment from a reinsurer or commit the insurer to any claim settlement with a reinsurer; without prior approval of
the insurer. If prior approval is given, a report must be promptly
forwarded to the insurer;
(6) Permit Except as provided in subsection (g), section five
of this article permit its subproducer to serve on the insurer's
board of directors;
(7) Jointly employ an individual who is employed with the
insurer; or
(8) Appoint a sub managing general agent.
§33-37-4. Duties of insurers.
(a) The insurer shall have on file an independent financial
examination, in a form acceptable to the commissioner, of each
managing general agent with which it has done business.
(a) The insurer shall have on file an independent audited
financial statement or reports for the two most recent fiscal years
that provide that the managing general agent has a positive net
worth. If the managing general agent has been in existence for
less than two fiscal years, the managing general agent shall
include financial statements or reports, certified by an officer of
the managing general agent and prepared in accordance with GAAP,
for any completed fiscal years, and for any month during the
current fiscal year for which financial statements or reports have
been completed. An audited financial/annual report prepared on a
consolidated basis shall include a columnar consolidating or combining worksheet that shall be filed with the report and include
the following:
(1) Amounts shown on the consolidated audited financial report
shall be shown on the worksheet;
(2) Amounts for each entity shall be stated separately; and
(3) Explanations of consolidating and eliminating entries
shall be included.
(b) If a managing general agent establishes loss reserves, the
insurer shall annually obtain the opinion of an actuary in a form
consistent with the requirements for actuarial certifications as
imposed upon the insurer by statute or rule of the commissioner,
attesting to the adequacy of loss reserves established for losses
incurred and outstanding on business produced by the managing
general agent. This required actuary's opinion is in addition to
any other required loss reserve certification.
(c) The insurer shall at least semiannually conduct an on-site
review of the underwriting and claims processing operations of the
managing general agent.
(d) Binding authority for all reinsurance contracts or
participation in insurance or reinsurance syndicates shall rest
with an officer of the insurer, who shall not be affiliated with
the managing general agent.
(e) Within thirty days of entering into or terminating a
contract with a managing general agent, the insurer shall provide written notification of such appointment or termination to the
commissioner. A notice of appointment of a managing general agent
Notices of entering into a contract with a managing general agent
shall include a statement of duties which such agent the applicant
is expected to perform on behalf of the insurer, the lines of
insurance for which such agent the applicant is to be authorized to
act, and any other information the commissioner may request.
(f) An insurer shall review its books and records each quarter
to determine if any producer as defined by subsection (c) (d),
section one two of this article has become, by operation of that
subsection subsection (d), section two of this article, a managing
general agent as defined therein in that section. If the insurer
determines that a producer has become a managing general agent as
defined in subsection (c), section one pursuant to the above, the
insurer shall promptly notify the producer and the commissioner of
such determination and the insurer and producer must fully comply
with the provisions of this article within thirty days thereafter.
(g) An insurer shall not appoint to its board of directors an
officer, director, employee, subproducer or controlling shareholder
of its managing general agents. This subsection shall not apply to
relationships governed by the Insurance Holding Company Systems
Regulatory Act or the Business Transacted with Producer Controlled
Property/Casualty Insurer Act.
§33-37-6. Penalties and liabilities.
(a) If the commissioner finds after a hearing conducted in
accordance with section thirteen, article two of this chapter that
any person has violated any provision of this article, the
commissioner may order:
(a) If the commissioner finds that the managing general agent
or any other person has violated any provision of this article, or
any rule or order promulgated thereunder, after a hearing conducted
in accordance with section thirteen, article two of this chapter,
the commissioner may order:
(1) For each separate violation, a penalty in an amount of one
thousand dollars not exceeding ten thousand dollars;
(2) Revocation or suspension of the producer's license; and
(3) Reimbursement by the managing general agent of the
insurer, the rehabilitator or liquidator of the insurer for any
losses incurred by the insurer and its policyholders and creditors
caused by a violation of this article committed by the managing
general agent; and
(4) If it was found that because of any violation that the
insurer has suffered any loss or damage, the commissioner may
maintain a civil action brought by or on behalf of the insurer and
its policyholders and creditors for recovery of compensatory
damages for the benefit of the insurer and its policyholders and
creditors or other appropriate relief.
(b) If an order of rehabilitation or liquidation of the insurer has been entered pursuant to article ten of this chapter
and the receiver appointed under that order determines that the
managing general agent or any other person has not materially
complied with this article, or any rule or order promulgated
thereunder, and the insurer suffered any loss or damage therefrom,
the receiver may maintain a civil action for recovery of damages or
other appropriate sanctions for the benefit of the insurer.
(c) Nothing contained in this section shall affect the right
of the commissioner to impose any other penalties provided for in
this chapter.
(d) Nothing contained in this article is intended to or shall
in any manner limit or restrict the rights of policyholders,
claimants and creditors.
(b) (e) The decision, determination or order of the
commissioner pursuant to subsection (a) of this section shall be
subject to judicial review pursuant to section fourteen, article
two of this chapter.
§33-37-7. Rule-making authority.
The commissioner is thereby authorized to promulgate
reasonable rules for the implementation and administration of the
provisions of this article, pursuant to chapter twenty-nine-a of
this code.
§33-37-8. Short title.
This article may be cited as the Managing General Agents Act.
§33-37-9. Effective date.
This article shall take effect on the first day of July, two
thousand three. No insurer may continue to utilize the services of
a managing general agent on and after the first day of July, two
thousand three, unless such utilization is in compliance with this
article.
NOTE: The purpose of this bill is to license managing general
agents and to allow insurance agencies to operate as managing
general agents. The current statute does not allow agencies to
operate as managing general agents, nor does it provide a means for
the Insurance Commissioner to determine who the managing general
agents operating in West Virginia are. With the adoption of the
Producer Licensing Model Act agencies will be licensed effective
July 1, 2003. Agencies will then be eligible to be managing
general agents. The amendment will require managing general agents
to become licensed and provide a means for the Insurance
Commissioner to determine who is acting as managing general agents
in West Virginia.
Strike-throughs indicate language that would be stricken from
the present law, and underscoring indicates new language that would
be added.
§33-37-8 and 9 are new; therefore, strike-throughs and
underscoring have been omitted.
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