[§431:11A-103]  Minimum standards.  (a) The minimum standards specified in this section shall apply if, in any calendaryear, the aggregate amount of gross written premiums on business placed with acontrolled insurer by a controlling producer is equal to or greater than fiveper cent of the admitted assets of the controlled insurer, as reported in thecontrolled insurer's quarterly statement filed as of September 30 of the prioryear.  However, the provisions of this section shall not apply if:

(1)  The controlling producer:

(A)  Places insurance only with the controlledinsurer, or only with the controlled insurer and a member or members of thecontrolled insurer's holding company system, or the controlled insurer'sparent, affiliate, or subsidiary, and receives no compensation based upon theamount of premiums written in connection with such insurance; and

(B)  Accepts insurance placements only fromnonaffiliated subproducers, and not directly from insureds;

(2)  The controlled insurer, except for insurancebusiness written through a residual market facility, accepts insurance businessonly from a controlling producer, a producer controlled by the controlledinsurer, or a producer that is a subsidiary of the controlled insurer; and

(3)  The controlling producer is domiciled in theState and is authorized to do business only in the State and the controlledinsurer is licensed and conducting business only in the State.

(b)  A controlled insurer shall not acceptbusiness from a controlling producer and a controlling producer shall not placebusiness with a controlled insurer unless there is a written contract betweenthe controlling producer and the controlled insurer specifying theresponsibilities of each party, which contract has been approved by the boardof directors of the controlled insurer and contains the following minimumprovisions:

(1)  The controlled insurer may terminate the contractfor cause, upon written notice to the controlling producer.  The controlledinsurer shall suspend the authority of the controlling producer to writebusiness during the pendency of any dispute regarding the cause for thetermination;

(2)  The controlling producer shall render accounts tothe controlled insurer detailing all material transactions, including informationnecessary to support all commissions, charges, and other fees received by, orowing to, the controlling producer;

(3)  The controlling producer shall remit all fundsdue under the terms of the contract to the controlled insurer on at least amonthly basis.  The due date shall be fixed so that premiums or installments ofpremiums collected by the controlling producer shall be remitted no later thanninety days after the effective date of the policy or policies placed with thecontrolled insurer under the contract;

(4)  All funds collected for the controlled insurer'saccount shall be held by the controlling producer in a fiduciary capacity, inone or more appropriately identified bank accounts in banks that are members ofthe federal savings and loan insurance corporation or similar federal agencypursuant to section 431:6-315;

(5)  The controlling producer shall maintainseparately identifiable records of business written for the controlled insurer;

(6)  The contract shall not be assigned in whole or inpart by the controlling producer;

(7)  The controlled insurer shall provide thecontrolling producer with its underwriting standards, rules and procedures,manuals setting forth the rates to be charged, and the conditions for theacceptance or rejection of risks.  The controlling producer shall adhere to thestandards, rules, procedures, rates, and conditions.  The standards, rules,procedures, rates, and conditions shall be the same as those applicable tocomparable business placed with the controlled insurer by a producer other thanthe controlling producer;

(8)  The rates and terms of the controlling producer'scommissions, charges, or other fees and the purposes for those charges orfees.  The rates of the  commissions, charges, and other fees shall be no greaterthan those applicable to comparable business placed with the controlled insurerby producers other than controlling producers.  For purposes of this paragraphand paragraph (7), examples of "comparable business" include the samelines of insurance, same kinds of insurance, same kinds of risks, similarpolicy limits, and similar quality of business;

(9)  If the contract provides that the controllingproducer, on insurance business placed with the controlled insurer, is to becompensated contingent upon the controlled insurer's profits on that business,then that compensation shall not be determined and paid until at least fiveyears after the premiums are earned on liability insurance and at least oneyear after the premiums are earned on any other insurance.  In no event shallthe commissions be paid until the adequacy of the controlled insurer's reserveson remaining claims has been independently verified pursuant to subsection (c);

(10)  A limit on the controlling producer's productionin relation to the controlled insurer's surplus and total production.  Theinsurer may establish a different limit for each line or subline of business. The controlled insurer shall notify the controlling producer when theapplicable limit is approached and shall not accept business from thecontrolling producer if the limit is reached.  The controlling producer shallnot place business with the controlled insurer if the producer has beennotified by the controlled insurer that the limit has been reached; and

(11)  The controlling producer may negotiate, but shallnot bind, reinsurance on behalf of the controlled insurer on business thecontrolling producer places with the controlled insurer, except that thecontrolling producer may bind facultative reinsurance contracts pursuant toobligatory facultative agreements if the contract with the controlled insurercontains underwriting guidelines including, for both reinsurance assumed andceded, a list of reinsurers with which those automatic agreements are ineffect, the coverages and amounts or percentages that may be reinsured, andcommission schedules.

(c)  Every controlled insurer shall have anaudit committee of the board of directors composed of independent directors. The audit committee shall annually meet with management, the insurer'sindependent certified public accountants, and an independent casualty actuaryor other independent loss reserve specialist acceptable to the commissioner toreview the adequacy of the controlled insurer's loss reserves.

(d)  In addition to any other required lossreserve certification, the controlled insurer annually, on April 1 of eachyear, shall file with the commissioner an opinion of an independent casualtyactuary (or such other independent loss reserve specialist acceptable to thecommissioner) reporting loss ratios for each line of business written andattesting to the adequacy of loss reserves established for losses incurred andoutstanding as of year-end (including incurred but not reported) on businessplaced by the controlling producer.  The controlled insurer shall annuallyreport to the commissioner the amount of commissions paid to the controllingproducer, the percentage that amount represents of the net premiums written,and comparable amounts and percentages paid to noncontrolling producers forplacements of the same kinds of insurance with the controlled insurer. [L 1992,c 176, pt of §1]