In this subtitle the following words have the meanings indicated. “Control”, “controlling”, “controlled by”, or “under common control with” means the direct or indirect possession of the power to direct or cause the direction of the management and policies of a person, through ownership of voting securities or of securities convertible into voting securities, by contract other than a commercial contract for goods or nonmanagement services, or otherwise, whether or not the power is exercised or sought to be exercised. “Controlled insurer” means an insurer that is under the control of a controlling insurance producer. “Controlling insurance producer” means an insurance producer that has control of a controlled insurer.

This subtitle applies only to authorized insurers that issue policies covered by the Property and Casualty Insurance Guaranty Corporation.

This subtitle does not affect the rights of policyholders, claimants, or creditors of a controlled insurer, or other third parties. This subtitle does not affect the responsibility of any person to comply with applicable provisions of Title 7 of this article.

Control is presumed to exist if a person directly or indirectly owns, directs the voting of, holds with the power to vote, or holds proxies representing 10% or more of the voting securities of another person. However, control is not presumed to exist if proxies have been obtained by an official of the person solely in connection with voting at a meeting of the owners of the person. The presumption of control may be rebutted by showing by a preponderance of the evidence that control does not exist in fact. Notwithstanding the presumption of control, the Commissioner, on application of an insurer, may find that a person presumed to control an insurer does not have control of the insurer. In addition, the Commissioner, after notice and an opportunity to be heard, may find that a person not presumed to have control of an insurer does have control of the insurer.

In this section, “independent casualty actuary” means a casualty actuary who: is a member of the American Academy of Actuaries; and is not affiliated with, an employee of, a principal of, the direct or indirect owner of, or in any way in the control of a controlled insurer or a controlling insurance producer. If a controlling insurance producer, when the insurance business is placed, is acting in a transaction on behalf of an insured for compensation, commission, or other valuable consideration, the controlling insurance producer may not directly or indirectly place insurance business with its controlled insurer unless the requirements of this section are met. There shall be a written contract between the controlling insurance producer and controlled insurer that has been approved by the board of directors of the controlled insurer. If insurance business is placed through a controlling insurance producer, the controlling insurance producer shall deliver written notice to the prospective insured before the effective date of the policy, disclosing the relationship between the controlling insurance producer and the controlled insurer. The disclosure shall be signed by the prospective insured and retained in the underwriting file until the filing of the examination report for the period during which the policy is in effect. If insurance business is placed through a sub-insurance producer that is not a controlling insurance producer, the controlling insurance producer shall retain in the controlling insurance producer’s records a signed statement from the sub-insurance producer that: the sub-insurance producer is aware of the relationship between the controlling insurance producer and the controlled insurer; the sub-insurance producer has delivered to the prospective insured written notice disclosing that relationship; and the disclosure has been signed by the prospective insured and will be retained by the sub-insurance producer for 3 years. At least quarterly, the controlling insurance producer shall pay to the controlled insurer all money that the controlling insurance producer collected for the account of the controlled insurer, net of commissions, cancellations, and other adjustments. In addition to any other required loss reserve certification, the controlled insurer on or before April 1 of each year shall file with the Commissioner an opinion of: an independent casualty actuary; or another independent loss reserve specialist acceptable to the Commissioner. The opinion shall: report loss ratios for each line of insurance business written; and attest that loss reserves are adequate for losses incurred and outstanding as of year end on insurance business placed by the controlling insurance producer, including losses incurred but not reported. The controlled insurer shall report annually to the Commissioner: the amount of commission it paid to the controlling insurance producer; the percentage that amount represents of the net premiums written; and comparable amounts and percentages paid to noncontrolling insurance producers for placement of the same kinds of insurance. The controlled insurer shall have an audit committee of the board of directors composed of independent directors. Before approval of the annual financial statement, the audit committee shall meet to review the adequacy of the controlled insurer's loss reserves with: management; the controlled insurer's independent certified public accountants; and another independent loss reserve specialist acceptable to the Commissioner or an independent casualty actuary.

In this section, “reinsurance intermediary” means a person that acts as an insurance producer in: soliciting, negotiating, or procuring a reinsurance contract or binder for a ceding insurer; or accepting a reinsurance contract or binder for an assuming insurer. This section does not apply to a reinsurance intermediary that makes a complete written disclosure to the parties of its relationship with the assuming or ceding insurer before completion of the transaction. A reinsurance intermediary that has control of an assuming insurer may not directly or indirectly place insurance business with the assuming insurer in a transaction in which the reinsurance intermediary acts as an insurance producer for the ceding insurer. A reinsurance intermediary that has control of a ceding insurer may not directly or indirectly accept business from the ceding insurer in a transaction in which the reinsurance intermediary acts as an insurance producer for the assuming insurer.

With respect to insurance business placed by its controlling insurance producer, the controlled insurer may not engage in a pattern of charging premiums that are unjustifiably lower than those being charged by the controlled insurer or other insurers for similar risks written during the same period and placed by noncontrolling insurance producers. When determining whether premiums are unjustifiably lower than those prevailing in the market, the Commissioner shall take into consideration applicable industry or actuarial standards at the time the insurance business was written. With respect to insurance business placed by its controlling insurance producer, the controlled insurer shall establish underwriting procedures and may not deviate from them. A controlled insurer’s capitalization at the time insurance business is placed by the controlling insurance producer and with respect to that insurance business shall comply with: criteria set by the Commissioner; and all applicable insurance laws.

The controlling insurance producer shall keep records sufficient to: demonstrate that the controlling insurance producer’s dealings with its controlled insurer were fair and comply with Title 7 of this article; and disclose accurately the nature and details of the controlling insurance producer’s transactions with its controlled insurer, including any information that is necessary to support the charges or fees to the respective parties.

If the Commissioner has reason to believe that a controlling insurance producer has violated or is violating this subtitle, the Commissioner shall: serve on the controlling insurance producer a statement of charges and notice of hearing; and hold a hearing subject to §§ 2-210 through 2-214 of this article. An order of the Commissioner is subject to judicial review under § 2-215 of this article. The controlling insurance producer shall reimburse the Property and Casualty Insurance Guaranty Corporation for any payments made by the Property and Casualty Insurance Guaranty Corporation for losses, loss adjustment, and administrative expenses on the insurance business placed by the controlling insurance producer in excess of gross earned premiums and investment income earned on premiums and loss reserves for the insurance business if the Commissioner finds that: the controlling insurance producer violated this subtitle; and the violation substantially contributed to the insolvency of the controlled insurer. This section does not affect the right of the Commissioner to impose any other penalty provided in this article.