(1) "Control",including the terms "controlling", "controlled by", and"under common control", means the direct or indirect possession ofthe power to direct or cause the direction of the management and policies of aperson, whether through the ownership of voting securities, by contract otherthan a commercial contract for goods or nonmanagement services, or otherwise,unless the power is the result of an official position with or corporate officeheld by the person.
(1a) "Custodialagreement" means any agreement or contract under which any person isdelegated authority to safekeep assets of the insurer.
(2) "Insurer"means a domestic insurer but does not mean a reciprocal regulated under Article15 of this Chapter.
(2a) "Managementcontract" means any agreement or contract under which any person isdelegated management duties or control of an insurer or transfers a substantialpart of any major function of an insurer, such as adjustment of losses,production of business, investment of assets, or general servicing of theinsurer's business.
(3) "Managinggeneral agent" or "MGA" means any person who manages all or partof the insurance business of an insurer (including the management of a separatedivision, department, or underwriting office) and acts as an agent for theinsurer, whether known as a managing general agent, manager, or other similarterm, who, with or without the authority, either separately or together withpersons under common control, produces, directly or indirectly, and underwritesan amount of gross direct written premium equal to or more than five percent(5%) of the policyholder surplus as reported in the last annual statement ofthe insurer in any one quarter or year together with one or more of thefollowing activities related to the business produced: (i) adjusts or pays anyclaims, or (ii) negotiates reinsurance on behalf of the insurer."MGA" does not mean an employee of the insurer; an underwritingmanager who, pursuant to contract, manages all or part of the insuranceoperations of the insurer, is under common control with the insurer, is subjectto Article 19 of this Chapter, and whose compensation is not based on thevolume of premiums written; a person who, under Article 15 of this Chapter, isdesignated and authorized by subscribers as the attorney‑in‑factfor a reciprocal having authority to obligate them on reciprocal and otherinsurance contracts; or a U.S. Manager of the United States branch of an alieninsurer.
(4) "Qualifiedactuary" means a person who meets the standards of a qualified actuary asspecified in the NAIC Annual Statement Instructions, as amended or clarified byrule, order, directive, or bulletin of the Department, for the type of insurer forwhich the MGA is establishing loss reserves.
(5) "Underwrite"means the authority to accept or reject risk on behalf of the insurer.
(b) Control is presumedto exist if any person directly or indirectly owns, controls, holds with thepower to vote, or holds proxies representing ten percent (10%) or more of thevoting securities of any other person. The Commissioner may determine, afterfurnishing all persons in interest notice and opportunity to be heard andmaking specific findings of fact to support the determination, that controlexists in fact, notwithstanding the absence of a presumption to that effect.The Commissioner may determine upon application that any person does not orwill not upon the taking of some proposed action control another person. The Commissionermay prospectively revoke or modify that determination, after the notice andopportunity to be heard, whenever, in the Commissioner's judgment, revocation,or modification is consistent with this Article.
(c) No person shall actas an MGA with respect to risks located in this State for an insurer unlessthat person is a licensed agent in this State. No person shall act as an MGArepresenting an insurer with respect to risks located outside of this Stateunless that person is licensed as an agent in this State; and the license maybe a nonresident license. The Commissioner may require a bond in an amountacceptable to the Commissioner for the protection of the insurer. TheCommissioner may require the MGA to maintain an errors and omissions policy.
(d) No person acting asan MGA shall place business with an insurer unless there is in force a writtencontract between the MGA and the insurer that sets forth the responsibilitiesof each party and, where both parties share responsibility for a particular function,specifies the division of such responsibilities, and that contains thefollowing minimum provisions:
(1) The insurer mayterminate the contract for cause upon written notice to the MGA. The insurermay suspend the underwriting authority of the MGA during the pendency of anydispute regarding the cause for termination.
(2) The MGA will renderaccounts to the insurer detailing all transactions and remit all funds dueunder the contract to the insurer on not less than a monthly basis.
(3) All funds collectedfor the account of an insurer will be held by the MGA in a fiduciary capacityin a bank that is a member of the Federal Reserve System. This account shall beused for all payments on behalf of the insurer. The MGA may retain no more thanthree months estimated claims payments and allocated loss adjustment expenses.
(4) Separate records ofbusiness written by the MGA will be maintained. The insurer shall have accessto and right to copy all accounts related to its business in a form usable bythe insurer, and the Commissioner shall have access to all books, bankaccounts, and records of the MGA in a form usable to the Commissioner. Therecords shall be retained according to the provisions of 11 NCAC 11C.0105.
(5) The contract may notbe assigned in whole or part by the MGA.
(6) Appropriateunderwriting guidelines, including: the maximum annual premium volume; thebasis of the rates to be charged; the types of risks that may be written;maximum limits of liability; applicable exclusions; territorial limitations;policy cancellation provisions; and the maximum policy period. The insurershall have the right to cancel or nonrenew any policy of insurance subject toapplicable laws and rules.
(7) If the contractpermits the MGA to settle claims on behalf of the insurer:
a. All claims must bereported to the insurer in a timely manner.
b. A copy of the claimfile will be sent to the insurer at its request or as soon as it becomes knownthat the claim: has the potential to exceed an amount determined by the insurerand approved by the Commissioner; involves a coverage dispute; may exceed theMGA's claims settlement authority; is open for more than six months; or isclosed by payment of an amount set by the insurer and approved by theCommissioner.
c. All claim files willbe the joint property of the insurer and MGA. However, upon an order ofliquidation of the insurer the files shall become the sole property of theinsurer or its estate; the MGA shall have reasonable access to and the right tocopy the files on a timely basis.
d. Any settlementauthority granted to the MGA may be terminated for cause upon the insurer'swritten notice to the MGA or upon the termination of the contract. The insurermay suspend the settlement authority during the pendency of any disputeregarding the cause for termination.
(8) Where electronicclaims files are in existence, the contract must address the timelytransmission of the data.
(9) If the contractprovides for a sharing of interim profits by the MGA, and the MGA has the authorityto determine the amount of the interim profits by establishing loss reserves,controlling claim payments, or by any other manner, interim profits will not bepaid to the MGA until one year after they are earned for property insurancebusiness and five years after they are earned on casualty business and notuntil the profits have been verified under subsection (f) of this section.
(10) The MGA shall not:
a. Bind reinsurance orretrocessions on behalf of the insurer, except that the MGA may bind facultativereinsurance contracts pursuant to obligatory facultative agreements if thecontract with the insurer contains reinsurance underwriting guidelinesincluding, for both reinsurance assumed and ceded, a list of reinsurers withwhich such automatic agreements are in effect, the coverages and amounts orpercentages that may be reinsured, and commission schedules;
b. Commit the insurerto participate in insurance or reinsurance syndicates;
c. Appoint any producerwithout assuring that the producer is lawfully licensed to transact the type ofinsurance for which the producer is appointed;
d. Without priorapproval of the insurer, pay or commit the insurer to pay a claim over aspecified amount, net of reinsurance, which shall not exceed one percent (1%)of the insurer's policyholder's surplus as of the preceding December 31;
e. Collect any paymentfrom a reinsurer or commit the insurer to any claim settlement with areinsurer, without the insurer's prior approval. If prior approval is given, areport must be promptly forwarded to the insurer;
f. Permit itssubproducer to serve on the insurer's board of directors;
g. Jointly employ anindividual who is employed with the insurer; or
h. Appoint a sub‑MGA.
(e) An insurer shallhave on file by June 1 of each year an audited financial report of each MGAwith which it is doing business. The report shall include the opinion of anindependent certified public accountant, report the financial position of theMGA as of the most recent year‑end and the results of its operations andcash flows, and include appropriate notes to financial statements. The insurershall provide a copy of the report to the Commissioner within 15 days ofreceipt by the insurer.
(f) If an MGAestablishes loss reserves, the insurer shall provide with its annual statement,in addition to any other required statement of actuarial opinion, the statementof a qualified actuary attesting to the adequacy of loss reserves establishedon business produced by the MGA. The statement shall comply in all respects withthe NAIC Annual Statement Instructions regarding the Statement of ActuarialOpinion.
(g) The insurer shallperiodically, at least semiannually, conduct an on‑site review of theunderwriting and claims processing operations of the MGA. The insurer shallprepare and maintain a written report on the review and make it available tothe Commissioner upon the Commissioner's request.
(h) Binding authorityfor all reinsurance contracts, except those contracts expressly permitted undersub‑subdivision (d)(10)a. of this section, or participation in insuranceor reinsurance syndicates, shall rest with an officer of the insurer, who shallnot be affiliated with the MGA.
(i) Within 15 daysafter entering into or termination of a contract with an MGA, the insurer shallprovide written notification of the appointment or termination to theCommissioner. Notices of appointment of an MGA shall include a copy of thecontract, a statement of duties that the MGA is expected to perform on behalfof the insurer, the lines of insurance for which the MGA is to be authorized toact, whether any affiliation exists between the insurer and the MGA and thebasis for the affiliation, NAIC biographical affidavit for each officer,director, and each person who owns ten percent (10%) or more of the outstandingvoting stock of the MGA, and any other information the Commissioner mayrequest. The Commissioner may prescribe the form to be used for notification ofthe information required by this item.
(j) The Commissionershall disapprove any such contract that:
(1) Does not contain therequired contract provisions specified in subsection (d) of this section;
(2) Subjects the insurerto excessive charges for expenses or commission;
(3) Vests in the MGA anycontrol over the management of the affairs of the insurer to the exclusion ofthe board of directors of the insurer;
(4) Is entered into withany person if the person or its officers and directors are of known badcharacter or have been affiliated directly or indirectly through ownership,control, management, reinsurance transactions, or other insurance or businessrelationships with any person known to have been involved in the impropermanipulation of assets, accounts, or reinsurance; or
(5) Is determined by theCommissioner to contain provisions that are not fair and reasonable to theinsurer.
Failureof the Commissioner to disapprove any such contract within 30 days after thecontract has been filed with the Commissioner constitutes the Commissioner'sapproval of the contract. An insurer may continue to accept business from theperson until the Commissioner disapproves the contract. Any disapproval shallbe in writing. The Commissioner may withdraw approval of any contract theCommissioner has previously approved if the Commissioner determines that thebasis of the original approval no longer exists or that the contract has, inactual operation, shown itself to be subject to disapproval on any of thegrounds in this subsection. If the Commissioner withdraws approval of acontract, the Commissioner shall give the insurer notice of, and writtenreasons for, the withdrawal of approval. The Commissioner shall grant any partyto the contract a hearing upon request.
(k) An insurer shallreview its books and records each quarter to determine if any agent has becomean MGA. If the insurer determines that an agent has become an MGA, the insurershall promptly notify the agent of that determination and the insurer and agentmust fully comply with the provisions of this Article within 15 days.
(l) An insurer shallnot appoint to its board of directors an officer, director, employee, subagent,or controlling shareholder of its MGAs. This subsection does not apply torelationships governed by Article 19 of this Chapter or, if applicable, G.S. 58‑3‑165.
(m) The acts of an MGAare considered to be the acts of the insurer on whose behalf it is acting. AnMGA may be examined by the Commissioner under G.S. 58‑2‑131 throughG.S. 58‑2‑134 as if it were an insurer.
(n) If the Commissionerdetermines that an MGA or any other person has not materially complied withthis section or with any rule adopted or order issued under this section, afternotice and opportunity to be heard, the Commissioner may order:
(1) For each separateviolation, a civil penalty under the procedures in G.S. 58‑2‑70(d);or
(2) Revocation orsuspension of the person's license.
(3) Repealed by SessionLaws 1993, c. 452, s. 47.
If theCommissioner finds that because of a material noncompliance that an insurer hassuffered any loss or damage, the Commissioner may maintain a civil actionbrought by or on behalf of the insurer and its policyholders and creditors forrecovery of compensatory damages for the benefit of the insurer and itspolicyholders and creditors or for other appropriate relief.
(o) Nothing in thissection affects the Commissioner's right to impose any other penalties providedfor in this Chapter. Nothing in this Article limits or restricts the rights ofpolicyholders, claimants, and creditors.
(p) If an order ofrehabilitation or liquidation of the insurer has been entered under Article 30of this Chapter, and the receiver appointed under that order determines thatthe MGA or any other person has not materially complied with this section, orany regulation or order promulgated thereunder, and the insurer suffered anyloss or damage therefrom, the receiver may maintain a civil action for recoveryof damages or other appropriate sanctions for the benefit of the insurer. (1991, c. 681, s. 51; 1993,c. 452, ss. 43‑48; 1993 (Reg. Sess., 1994), c. 678, s. 19; 1995, c. 193,s. 34; 1999‑132, s. 11.6; 2001‑223, ss. 20.1, 20.2.)
(1) "Control",including the terms "controlling", "controlled by", and"under common control", means the direct or indirect possession ofthe power to direct or cause the direction of the management and policies of aperson, whether through the ownership of voting securities, by contract otherthan a commercial contract for goods or nonmanagement services, or otherwise,unless the power is the result of an official position with or corporate officeheld by the person.
(1a) "Custodialagreement" means any agreement or contract under which any person isdelegated authority to safekeep assets of the insurer.
(2) "Insurer"means a domestic insurer but does not mean a reciprocal regulated under Article15 of this Chapter.
(2a) "Managementcontract" means any agreement or contract under which any person isdelegated management duties or control of an insurer or transfers a substantialpart of any major function of an insurer, such as adjustment of losses,production of business, investment of assets, or general servicing of theinsurer's business.
(3) "Managinggeneral agent" or "MGA" means any person who manages all or partof the insurance business of an insurer (including the management of a separatedivision, department, or underwriting office) and acts as an agent for theinsurer, whether known as a managing general agent, manager, or other similarterm, who, with or without the authority, either separately or together withpersons under common control, produces, directly or indirectly, and underwritesan amount of gross direct written premium equal to or more than five percent(5%) of the policyholder surplus as reported in the last annual statement ofthe insurer in any one quarter or year together with one or more of thefollowing activities related to the business produced: (i) adjusts or pays anyclaims, or (ii) negotiates reinsurance on behalf of the insurer."MGA" does not mean an employee of the insurer; an underwritingmanager who, pursuant to contract, manages all or part of the insuranceoperations of the insurer, is under common control with the insurer, is subjectto Article 19 of this Chapter, and whose compensation is not based on thevolume of premiums written; a person who, under Article 15 of this Chapter, isdesignated and authorized by subscribers as the attorney‑in‑factfor a reciprocal having authority to obligate them on reciprocal and otherinsurance contracts; or a U.S. Manager of the United States branch of an alieninsurer.
(4) "Qualifiedactuary" means a person who meets the standards of a qualified actuary asspecified in the NAIC Annual Statement Instructions, as amended or clarified byrule, order, directive, or bulletin of the Department, for the type of insurer forwhich the MGA is establishing loss reserves.
(5) "Underwrite"means the authority to accept or reject risk on behalf of the insurer.
(b) Control is presumedto exist if any person directly or indirectly owns, controls, holds with thepower to vote, or holds proxies representing ten percent (10%) or more of thevoting securities of any other person. The Commissioner may determine, afterfurnishing all persons in interest notice and opportunity to be heard andmaking specific findings of fact to support the determination, that controlexists in fact, notwithstanding the absence of a presumption to that effect.The Commissioner may determine upon application that any person does not orwill not upon the taking of some proposed action control another person. The Commissionermay prospectively revoke or modify that determination, after the notice andopportunity to be heard, whenever, in the Commissioner's judgment, revocation,or modification is consistent with this Article.
(c) No person shall actas an MGA with respect to risks located in this State for an insurer unlessthat person is a licensed agent in this State. No person shall act as an MGArepresenting an insurer with respect to risks located outside of this Stateunless that person is licensed as an agent in this State; and the license maybe a nonresident license. The Commissioner may require a bond in an amountacceptable to the Commissioner for the protection of the insurer. TheCommissioner may require the MGA to maintain an errors and omissions policy.
(d) No person acting asan MGA shall place business with an insurer unless there is in force a writtencontract between the MGA and the insurer that sets forth the responsibilitiesof each party and, where both parties share responsibility for a particular function,specifies the division of such responsibilities, and that contains thefollowing minimum provisions:
(1) The insurer mayterminate the contract for cause upon written notice to the MGA. The insurermay suspend the underwriting authority of the MGA during the pendency of anydispute regarding the cause for termination.
(2) The MGA will renderaccounts to the insurer detailing all transactions and remit all funds dueunder the contract to the insurer on not less than a monthly basis.
(3) All funds collectedfor the account of an insurer will be held by the MGA in a fiduciary capacityin a bank that is a member of the Federal Reserve System. This account shall beused for all payments on behalf of the insurer. The MGA may retain no more thanthree months estimated claims payments and allocated loss adjustment expenses.
(4) Separate records ofbusiness written by the MGA will be maintained. The insurer shall have accessto and right to copy all accounts related to its business in a form usable bythe insurer, and the Commissioner shall have access to all books, bankaccounts, and records of the MGA in a form usable to the Commissioner. Therecords shall be retained according to the provisions of 11 NCAC 11C.0105.
(5) The contract may notbe assigned in whole or part by the MGA.
(6) Appropriateunderwriting guidelines, including: the maximum annual premium volume; thebasis of the rates to be charged; the types of risks that may be written;maximum limits of liability; applicable exclusions; territorial limitations;policy cancellation provisions; and the maximum policy period. The insurershall have the right to cancel or nonrenew any policy of insurance subject toapplicable laws and rules.
(7) If the contractpermits the MGA to settle claims on behalf of the insurer:
a. All claims must bereported to the insurer in a timely manner.
b. A copy of the claimfile will be sent to the insurer at its request or as soon as it becomes knownthat the claim: has the potential to exceed an amount determined by the insurerand approved by the Commissioner; involves a coverage dispute; may exceed theMGA's claims settlement authority; is open for more than six months; or isclosed by payment of an amount set by the insurer and approved by theCommissioner.
c. All claim files willbe the joint property of the insurer and MGA. However, upon an order ofliquidation of the insurer the files shall become the sole property of theinsurer or its estate; the MGA shall have reasonable access to and the right tocopy the files on a timely basis.
d. Any settlementauthority granted to the MGA may be terminated for cause upon the insurer'swritten notice to the MGA or upon the termination of the contract. The insurermay suspend the settlement authority during the pendency of any disputeregarding the cause for termination.
(8) Where electronicclaims files are in existence, the contract must address the timelytransmission of the data.
(9) If the contractprovides for a sharing of interim profits by the MGA, and the MGA has the authorityto determine the amount of the interim profits by establishing loss reserves,controlling claim payments, or by any other manner, interim profits will not bepaid to the MGA until one year after they are earned for property insurancebusiness and five years after they are earned on casualty business and notuntil the profits have been verified under subsection (f) of this section.
(10) The MGA shall not:
a. Bind reinsurance orretrocessions on behalf of the insurer, except that the MGA may bind facultativereinsurance contracts pursuant to obligatory facultative agreements if thecontract with the insurer contains reinsurance underwriting guidelinesincluding, for both reinsurance assumed and ceded, a list of reinsurers withwhich such automatic agreements are in effect, the coverages and amounts orpercentages that may be reinsured, and commission schedules;
b. Commit the insurerto participate in insurance or reinsurance syndicates;
c. Appoint any producerwithout assuring that the producer is lawfully licensed to transact the type ofinsurance for which the producer is appointed;
d. Without priorapproval of the insurer, pay or commit the insurer to pay a claim over aspecified amount, net of reinsurance, which shall not exceed one percent (1%)of the insurer's policyholder's surplus as of the preceding December 31;
e. Collect any paymentfrom a reinsurer or commit the insurer to any claim settlement with areinsurer, without the insurer's prior approval. If prior approval is given, areport must be promptly forwarded to the insurer;
f. Permit itssubproducer to serve on the insurer's board of directors;
g. Jointly employ anindividual who is employed with the insurer; or
h. Appoint a sub‑MGA.
(e) An insurer shallhave on file by June 1 of each year an audited financial report of each MGAwith which it is doing business. The report shall include the opinion of anindependent certified public accountant, report the financial position of theMGA as of the most recent year‑end and the results of its operations andcash flows, and include appropriate notes to financial statements. The insurershall provide a copy of the report to the Commissioner within 15 days ofreceipt by the insurer.
(f) If an MGAestablishes loss reserves, the insurer shall provide with its annual statement,in addition to any other required statement of actuarial opinion, the statementof a qualified actuary attesting to the adequacy of loss reserves establishedon business produced by the MGA. The statement shall comply in all respects withthe NAIC Annual Statement Instructions regarding the Statement of ActuarialOpinion.
(g) The insurer shallperiodically, at least semiannually, conduct an on‑site review of theunderwriting and claims processing operations of the MGA. The insurer shallprepare and maintain a written report on the review and make it available tothe Commissioner upon the Commissioner's request.
(h) Binding authorityfor all reinsurance contracts, except those contracts expressly permitted undersub‑subdivision (d)(10)a. of this section, or participation in insuranceor reinsurance syndicates, shall rest with an officer of the insurer, who shallnot be affiliated with the MGA.
(i) Within 15 daysafter entering into or termination of a contract with an MGA, the insurer shallprovide written notification of the appointment or termination to theCommissioner. Notices of appointment of an MGA shall include a copy of thecontract, a statement of duties that the MGA is expected to perform on behalfof the insurer, the lines of insurance for which the MGA is to be authorized toact, whether any affiliation exists between the insurer and the MGA and thebasis for the affiliation, NAIC biographical affidavit for each officer,director, and each person who owns ten percent (10%) or more of the outstandingvoting stock of the MGA, and any other information the Commissioner mayrequest. The Commissioner may prescribe the form to be used for notification ofthe information required by this item.
(j) The Commissionershall disapprove any such contract that:
(1) Does not contain therequired contract provisions specified in subsection (d) of this section;
(2) Subjects the insurerto excessive charges for expenses or commission;
(3) Vests in the MGA anycontrol over the management of the affairs of the insurer to the exclusion ofthe board of directors of the insurer;
(4) Is entered into withany person if the person or its officers and directors are of known badcharacter or have been affiliated directly or indirectly through ownership,control, management, reinsurance transactions, or other insurance or businessrelationships with any person known to have been involved in the impropermanipulation of assets, accounts, or reinsurance; or
(5) Is determined by theCommissioner to contain provisions that are not fair and reasonable to theinsurer.
Failureof the Commissioner to disapprove any such contract within 30 days after thecontract has been filed with the Commissioner constitutes the Commissioner'sapproval of the contract. An insurer may continue to accept business from theperson until the Commissioner disapproves the contract. Any disapproval shallbe in writing. The Commissioner may withdraw approval of any contract theCommissioner has previously approved if the Commissioner determines that thebasis of the original approval no longer exists or that the contract has, inactual operation, shown itself to be subject to disapproval on any of thegrounds in this subsection. If the Commissioner withdraws approval of acontract, the Commissioner shall give the insurer notice of, and writtenreasons for, the withdrawal of approval. The Commissioner shall grant any partyto the contract a hearing upon request.
(k) An insurer shallreview its books and records each quarter to determine if any agent has becomean MGA. If the insurer determines that an agent has become an MGA, the insurershall promptly notify the agent of that determination and the insurer and agentmust fully comply with the provisions of this Article within 15 days.
(l) An insurer shallnot appoint to its board of directors an officer, director, employee, subagent,or controlling shareholder of its MGAs. This subsection does not apply torelationships governed by Article 19 of this Chapter or, if applicable, G.S. 58‑3‑165.
(m) The acts of an MGAare considered to be the acts of the insurer on whose behalf it is acting. AnMGA may be examined by the Commissioner under G.S. 58‑2‑131 throughG.S. 58‑2‑134 as if it were an insurer.
(n) If the Commissionerdetermines that an MGA or any other person has not materially complied withthis section or with any rule adopted or order issued under this section, afternotice and opportunity to be heard, the Commissioner may order:
(1) For each separateviolation, a civil penalty under the procedures in G.S. 58‑2‑70(d);or
(2) Revocation orsuspension of the person's license.
(3) Repealed by SessionLaws 1993, c. 452, s. 47.
If theCommissioner finds that because of a material noncompliance that an insurer hassuffered any loss or damage, the Commissioner may maintain a civil actionbrought by or on behalf of the insurer and its policyholders and creditors forrecovery of compensatory damages for the benefit of the insurer and itspolicyholders and creditors or for other appropriate relief.
(o) Nothing in thissection affects the Commissioner's right to impose any other penalties providedfor in this Chapter. Nothing in this Article limits or restricts the rights ofpolicyholders, claimants, and creditors.
(p) If an order ofrehabilitation or liquidation of the insurer has been entered under Article 30of this Chapter, and the receiver appointed under that order determines thatthe MGA or any other person has not materially complied with this section, orany regulation or order promulgated thereunder, and the insurer suffered anyloss or damage therefrom, the receiver may maintain a civil action for recoveryof damages or other appropriate sanctions for the benefit of the insurer. (1991, c. 681, s. 51; 1993,c. 452, ss. 43‑48; 1993 (Reg. Sess., 1994), c. 678, s. 19; 1995, c. 193,s. 34; 1999‑132, s. 11.6; 2001‑223, ss. 20.1, 20.2.)
(1) "Control",including the terms "controlling", "controlled by", and"under common control", means the direct or indirect possession ofthe power to direct or cause the direction of the management and policies of aperson, whether through the ownership of voting securities, by contract otherthan a commercial contract for goods or nonmanagement services, or otherwise,unless the power is the result of an official position with or corporate officeheld by the person.
(1a) "Custodialagreement" means any agreement or contract under which any person isdelegated authority to safekeep assets of the insurer.
(2) "Insurer"means a domestic insurer but does not mean a reciprocal regulated under Article15 of this Chapter.
(2a) "Managementcontract" means any agreement or contract under which any person isdelegated management duties or control of an insurer or transfers a substantialpart of any major function of an insurer, such as adjustment of losses,production of business, investment of assets, or general servicing of theinsurer's business.
(3) "Managinggeneral agent" or "MGA" means any person who manages all or partof the insurance business of an insurer (including the management of a separatedivision, department, or underwriting office) and acts as an agent for theinsurer, whether known as a managing general agent, manager, or other similarterm, who, with or without the authority, either separately or together withpersons under common control, produces, directly or indirectly, and underwritesan amount of gross direct written premium equal to or more than five percent(5%) of the policyholder surplus as reported in the last annual statement ofthe insurer in any one quarter or year together with one or more of thefollowing activities related to the business produced: (i) adjusts or pays anyclaims, or (ii) negotiates reinsurance on behalf of the insurer."MGA" does not mean an employee of the insurer; an underwritingmanager who, pursuant to contract, manages all or part of the insuranceoperations of the insurer, is under common control with the insurer, is subjectto Article 19 of this Chapter, and whose compensation is not based on thevolume of premiums written; a person who, under Article 15 of this Chapter, isdesignated and authorized by subscribers as the attorney‑in‑factfor a reciprocal having authority to obligate them on reciprocal and otherinsurance contracts; or a U.S. Manager of the United States branch of an alieninsurer.
(4) "Qualifiedactuary" means a person who meets the standards of a qualified actuary asspecified in the NAIC Annual Statement Instructions, as amended or clarified byrule, order, directive, or bulletin of the Department, for the type of insurer forwhich the MGA is establishing loss reserves.
(5) "Underwrite"means the authority to accept or reject risk on behalf of the insurer.
(b) Control is presumedto exist if any person directly or indirectly owns, controls, holds with thepower to vote, or holds proxies representing ten percent (10%) or more of thevoting securities of any other person. The Commissioner may determine, afterfurnishing all persons in interest notice and opportunity to be heard andmaking specific findings of fact to support the determination, that controlexists in fact, notwithstanding the absence of a presumption to that effect.The Commissioner may determine upon application that any person does not orwill not upon the taking of some proposed action control another person. The Commissionermay prospectively revoke or modify that determination, after the notice andopportunity to be heard, whenever, in the Commissioner's judgment, revocation,or modification is consistent with this Article.
(c) No person shall actas an MGA with respect to risks located in this State for an insurer unlessthat person is a licensed agent in this State. No person shall act as an MGArepresenting an insurer with respect to risks located outside of this Stateunless that person is licensed as an agent in this State; and the license maybe a nonresident license. The Commissioner may require a bond in an amountacceptable to the Commissioner for the protection of the insurer. TheCommissioner may require the MGA to maintain an errors and omissions policy.
(d) No person acting asan MGA shall place business with an insurer unless there is in force a writtencontract between the MGA and the insurer that sets forth the responsibilitiesof each party and, where both parties share responsibility for a particular function,specifies the division of such responsibilities, and that contains thefollowing minimum provisions:
(1) The insurer mayterminate the contract for cause upon written notice to the MGA. The insurermay suspend the underwriting authority of the MGA during the pendency of anydispute regarding the cause for termination.
(2) The MGA will renderaccounts to the insurer detailing all transactions and remit all funds dueunder the contract to the insurer on not less than a monthly basis.
(3) All funds collectedfor the account of an insurer will be held by the MGA in a fiduciary capacityin a bank that is a member of the Federal Reserve System. This account shall beused for all payments on behalf of the insurer. The MGA may retain no more thanthree months estimated claims payments and allocated loss adjustment expenses.
(4) Separate records ofbusiness written by the MGA will be maintained. The insurer shall have accessto and right to copy all accounts related to its business in a form usable bythe insurer, and the Commissioner shall have access to all books, bankaccounts, and records of the MGA in a form usable to the Commissioner. Therecords shall be retained according to the provisions of 11 NCAC 11C.0105.
(5) The contract may notbe assigned in whole or part by the MGA.
(6) Appropriateunderwriting guidelines, including: the maximum annual premium volume; thebasis of the rates to be charged; the types of risks that may be written;maximum limits of liability; applicable exclusions; territorial limitations;policy cancellation provisions; and the maximum policy period. The insurershall have the right to cancel or nonrenew any policy of insurance subject toapplicable laws and rules.
(7) If the contractpermits the MGA to settle claims on behalf of the insurer:
a. All claims must bereported to the insurer in a timely manner.
b. A copy of the claimfile will be sent to the insurer at its request or as soon as it becomes knownthat the claim: has the potential to exceed an amount determined by the insurerand approved by the Commissioner; involves a coverage dispute; may exceed theMGA's claims settlement authority; is open for more than six months; or isclosed by payment of an amount set by the insurer and approved by theCommissioner.
c. All claim files willbe the joint property of the insurer and MGA. However, upon an order ofliquidation of the insurer the files shall become the sole property of theinsurer or its estate; the MGA shall have reasonable access to and the right tocopy the files on a timely basis.
d. Any settlementauthority granted to the MGA may be terminated for cause upon the insurer'swritten notice to the MGA or upon the termination of the contract. The insurermay suspend the settlement authority during the pendency of any disputeregarding the cause for termination.
(8) Where electronicclaims files are in existence, the contract must address the timelytransmission of the data.
(9) If the contractprovides for a sharing of interim profits by the MGA, and the MGA has the authorityto determine the amount of the interim profits by establishing loss reserves,controlling claim payments, or by any other manner, interim profits will not bepaid to the MGA until one year after they are earned for property insurancebusiness and five years after they are earned on casualty business and notuntil the profits have been verified under subsection (f) of this section.
(10) The MGA shall not:
a. Bind reinsurance orretrocessions on behalf of the insurer, except that the MGA may bind facultativereinsurance contracts pursuant to obligatory facultative agreements if thecontract with the insurer contains reinsurance underwriting guidelinesincluding, for both reinsurance assumed and ceded, a list of reinsurers withwhich such automatic agreements are in effect, the coverages and amounts orpercentages that may be reinsured, and commission schedules;
b. Commit the insurerto participate in insurance or reinsurance syndicates;
c. Appoint any producerwithout assuring that the producer is lawfully licensed to transact the type ofinsurance for which the producer is appointed;
d. Without priorapproval of the insurer, pay or commit the insurer to pay a claim over aspecified amount, net of reinsurance, which shall not exceed one percent (1%)of the insurer's policyholder's surplus as of the preceding December 31;
e. Collect any paymentfrom a reinsurer or commit the insurer to any claim settlement with areinsurer, without the insurer's prior approval. If prior approval is given, areport must be promptly forwarded to the insurer;
f. Permit itssubproducer to serve on the insurer's board of directors;
g. Jointly employ anindividual who is employed with the insurer; or
h. Appoint a sub‑MGA.
(e) An insurer shallhave on file by June 1 of each year an audited financial report of each MGAwith which it is doing business. The report shall include the opinion of anindependent certified public accountant, report the financial position of theMGA as of the most recent year‑end and the results of its operations andcash flows, and include appropriate notes to financial statements. The insurershall provide a copy of the report to the Commissioner within 15 days ofreceipt by the insurer.
(f) If an MGAestablishes loss reserves, the insurer shall provide with its annual statement,in addition to any other required statement of actuarial opinion, the statementof a qualified actuary attesting to the adequacy of loss reserves establishedon business produced by the MGA. The statement shall comply in all respects withthe NAIC Annual Statement Instructions regarding the Statement of ActuarialOpinion.
(g) The insurer shallperiodically, at least semiannually, conduct an on‑site review of theunderwriting and claims processing operations of the MGA. The insurer shallprepare and maintain a written report on the review and make it available tothe Commissioner upon the Commissioner's request.
(h) Binding authorityfor all reinsurance contracts, except those contracts expressly permitted undersub‑subdivision (d)(10)a. of this section, or participation in insuranceor reinsurance syndicates, shall rest with an officer of the insurer, who shallnot be affiliated with the MGA.
(i) Within 15 daysafter entering into or termination of a contract with an MGA, the insurer shallprovide written notification of the appointment or termination to theCommissioner. Notices of appointment of an MGA shall include a copy of thecontract, a statement of duties that the MGA is expected to perform on behalfof the insurer, the lines of insurance for which the MGA is to be authorized toact, whether any affiliation exists between the insurer and the MGA and thebasis for the affiliation, NAIC biographical affidavit for each officer,director, and each person who owns ten percent (10%) or more of the outstandingvoting stock of the MGA, and any other information the Commissioner mayrequest. The Commissioner may prescribe the form to be used for notification ofthe information required by this item.
(j) The Commissionershall disapprove any such contract that:
(1) Does not contain therequired contract provisions specified in subsection (d) of this section;
(2) Subjects the insurerto excessive charges for expenses or commission;
(3) Vests in the MGA anycontrol over the management of the affairs of the insurer to the exclusion ofthe board of directors of the insurer;
(4) Is entered into withany person if the person or its officers and directors are of known badcharacter or have been affiliated directly or indirectly through ownership,control, management, reinsurance transactions, or other insurance or businessrelationships with any person known to have been involved in the impropermanipulation of assets, accounts, or reinsurance; or
(5) Is determined by theCommissioner to contain provisions that are not fair and reasonable to theinsurer.
Failureof the Commissioner to disapprove any such contract within 30 days after thecontract has been filed with the Commissioner constitutes the Commissioner'sapproval of the contract. An insurer may continue to accept business from theperson until the Commissioner disapproves the contract. Any disapproval shallbe in writing. The Commissioner may withdraw approval of any contract theCommissioner has previously approved if the Commissioner determines that thebasis of the original approval no longer exists or that the contract has, inactual operation, shown itself to be subject to disapproval on any of thegrounds in this subsection. If the Commissioner withdraws approval of acontract, the Commissioner shall give the insurer notice of, and writtenreasons for, the withdrawal of approval. The Commissioner shall grant any partyto the contract a hearing upon request.
(k) An insurer shallreview its books and records each quarter to determine if any agent has becomean MGA. If the insurer determines that an agent has become an MGA, the insurershall promptly notify the agent of that determination and the insurer and agentmust fully comply with the provisions of this Article within 15 days.
(l) An insurer shallnot appoint to its board of directors an officer, director, employee, subagent,or controlling shareholder of its MGAs. This subsection does not apply torelationships governed by Article 19 of this Chapter or, if applicable, G.S. 58‑3‑165.
(m) The acts of an MGAare considered to be the acts of the insurer on whose behalf it is acting. AnMGA may be examined by the Commissioner under G.S. 58‑2‑131 throughG.S. 58‑2‑134 as if it were an insurer.
(n) If the Commissionerdetermines that an MGA or any other person has not materially complied withthis section or with any rule adopted or order issued under this section, afternotice and opportunity to be heard, the Commissioner may order:
(1) For each separateviolation, a civil penalty under the procedures in G.S. 58‑2‑70(d);or
(2) Revocation orsuspension of the person's license.
(3) Repealed by SessionLaws 1993, c. 452, s. 47.
If theCommissioner finds that because of a material noncompliance that an insurer hassuffered any loss or damage, the Commissioner may maintain a civil actionbrought by or on behalf of the insurer and its policyholders and creditors forrecovery of compensatory damages for the benefit of the insurer and itspolicyholders and creditors or for other appropriate relief.
(o) Nothing in thissection affects the Commissioner's right to impose any other penalties providedfor in this Chapter. Nothing in this Article limits or restricts the rights ofpolicyholders, claimants, and creditors.
(p) If an order ofrehabilitation or liquidation of the insurer has been entered under Article 30of this Chapter, and the receiver appointed under that order determines thatthe MGA or any other person has not materially complied with this section, orany regulation or order promulgated thereunder, and the insurer suffered anyloss or damage therefrom, the receiver may maintain a civil action for recoveryof damages or other appropriate sanctions for the benefit of the insurer. (1991, c. 681, s. 51; 1993,c. 452, ss. 43‑48; 1993 (Reg. Sess., 1994), c. 678, s. 19; 1995, c. 193,s. 34; 1999‑132, s. 11.6; 2001‑223, ss. 20.1, 20.2.)
