Sec. 33.5. Required contract provisions

No person, firm, association or corporation acting in the capacity of an MGA in this State shall place business with an insurer; no insurer shall utilize an MGA in this State; and no domestic insurer shall utilize an MGA outside of this State; unless there is in force a written contract between the parties that sets forth the responsibilities of each party. Where both parties share responsibility for a particular function, the contract shall specify the division of such responsibilities. The contract shall contain the following minimum provisions:

(a) The insurer may terminate the contract for cause upon written notice to the MGA. The insurer may suspend the underwriting authority of the MGA during the pendency of any dispute regarding the cause for termination.

(b) The MGA 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 MGA in a fiduciary capacity in accordance with section 20.3 of this Title (Regulation 29). This account shall be used for all payments on behalf of the insurer. The MGA may retain no more than three months of estimated claims payments and estimated allocated loss adjustment expense payments.

(d) Separate records of business written by the MGA will be maintained. The insurer shall have access and right to copy all accounts and records related to its business in a form usable by the insurer and the superintendent shall have access to all books, bank accounts and records of the MGA in a form usable to the superintendent. Such records shall be retained according to Part 243 of this Title (Regulation 152).

(e) The contract may not be assigned in whole or part by the MGA.

(f) The MGA will follow appropriate insurer 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.

(g) The insurer shall have the right to cancel or nonrenew any policy of insurance, subject to applicable laws and regulations concerning cancellation and nonrenewal of insurance policies.

(h) If the contract permits the MGA to settle claims on behalf of the insurer:

(1) all claims must be reported to the insurer in a timely manner;

(2) a copy of the claim file must be sent to the insurer at its request or as soon as it becomes known that the amount of the claim, before application of any reinsurance:

(i) has the potential to exceed one percent of the insurer's surplus to policyholders, as reported in its last filed annual statement, or exceeds the limit set by the company; whichever is less;

(ii) involves a coverage dispute;

(iii) may exceed the MGA's claims settlement authority;

(iv) is open for more than six months; or

(v) is closed by payment of one percent of the insurer's surplus to policyholders, as reported in its last filed annual statement, or an amount set by the company, whichever is less;

(3) all claim files will be the joint property of the insurer and MGA. However, upon an order of liquidation of the insurer, such files shall become the sole property of the insurer or its estate and the MGA shall have reasonable access to and the right to copy the files on a timely basis; and

(4) any settlement authority granted to the MGA may be terminated for cause upon the insurer's written notice to the MGA 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.

(i) Where electronic claims files exist, the contract must address the timely transmission of the data.

(j) If the contract provides for a sharing of interim profits by the MGA, and the MGA 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 MGA until one year after they are earned for property insurance business and five years after they are earned on casualty insurance business, and not until the profits have been verified pursuant to section 33.6 of this Part.

(k) The MGA shall not:

(1) bind reinsurance or retrocessions on behalf of the insurer, except that the MGA 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 producer without assuring that the producer is lawfully licensed to transact the kinds of insurance for which the producer 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 December 31st 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 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-MGA.