{"data":{"id":"us-ky/krs-304.3-410","jurisdiction":"us-ky","citation":"KRS 304.3-410","heading":"Applicability -- Contract between insurer and controlling producer --","body":"Audit committees -- Reporting requirements.\n(1) The applicability of this section is as follows:\n(a) The provisions of this section shall only apply if in any calendar year, the\naggregate amount of gross written premium on business placed with a\ncontrolled insurer by a controlling producer is equal to or greater than five\npercent (5%) of the admitted assets of the controlled insurer, as reported in the\ncontrolled insurer's quarterl y statement filed as of September 30 of the\nimmediate preceding year; and\n(b) Notwithstanding paragraph (a) of this subsection, the provisions of this\nsection shall not apply if:\n1. The controlling producer:\na. Places insurance only with the controlled ins urer, or only with the\ncontrolled insurer and a member or members of the controlled\ninsurer's holding company system, or the controlled insurer's\nparent, affiliate, or subsidiary and receives no compensation based\nupon the amount of premiums written in con nection with the\ninsurance; and\nb. Accepts insurance placements only from nonaffiliated\nsubproducers, and not directly from insureds; and\n2. The controlled insurer, except for insurance business written through a\nresidual market mechanism, accepts insuranc e business only from a\ncontrolling producer, a producer controlled by the controlled insurer, or\na producer that is a subsidiary of the controlled insurer.\n(2) A controlled insurer shall not accept business from a controlling producer and a\ncontrolling producer shall not place business with a controlled insurer unless there\nis a written contract between the controlling producer and the insurer specifying the\nresponsibilities of each party, and the contract has been approved by the board of\ndirectors of the insurer and contains the following minimum provisions:\n(a) The controlled insurer may terminate the contract for cause, upon written\nnotice to the controlling producer. The controlled insurer shall suspend the\nauthority of the controlling producer to write  business during the pendency of\nany dispute regarding the cause for termination;\n(b) The controlling producer shall render accounts to the controlled insurer\ndetailing all material transactions, including information necessary to support\nall commissions, charges, and other fees received by, or owing to, the\ncontrolling producer;\n(c) The controlling producer shall remit all funds due under the terms of the\ncontract to the controlled insurer on at least a monthly basis. The due date\nshall be fixed so that pr emiums or installments collected shall be remitted no\nlater than ninety (90) days after the effective date of any policy placed with the\ncontrolled insurer under this contract;\n(d) All funds collected for the controlled insurer's account shall be held by t he\ncontrolling producer in a fiduciary capacity, in one (1) or more appropriately\nidentified bank accounts in banks that are members of the federal reserve\nsystem, in accordance with the provisions of the insurance code, as applicable.\nFunds of a controlli ng producer not required to be licensed in this state shall\nbe maintained in compliance with the requirements of the controlling\nproducer's domiciliary jurisdiction;\n(e) The controlling producer shall maintain separately identifiable records of\nbusiness written for the controlled insurer;\n(f) The contract shall not be assigned in whole or in part by the controlling\nproducer;\n(g) The controlled insurer shall provide the controlling producer with its\nunderwriting standards, rules and procedures, and with manu als stating the\nrates to be charged and the conditions for the acceptance or rejection of risks.\nThe controlling producer shall adhere to the standards, rules, procedures,\nrates, and conditions. The standards, rules, procedures, rates, and conditions\nshall be the same as those applicable to comparable business placed with the\ncontrolled insurer by a producer other than the controlling producer;\n(h) The rates and terms of the controlling producer's commissions, charges, or\nother fees and the purposes for tho se charges or fees. The rates of\ncommissions, charges, and other fees shall be no greater than those applicable\nto comparable business placed with the controlled insurer by producers other\nthan the controlling producers. For purposes of this paragraph and paragraph\n(g) of this subsection, examples of \"comparable business\" include the same\nlines of insurance, same kinds of insurance, same kinds of risks, similar policy\nlimits, and similar quality of business. This paragraph does not authorize\ncontrolling pro ducers to charge fees which the controlling producer is not\notherwise permitted to charge under the provisions of the insurance code;\n(i) If the contract provides that the controlling producer, on insurance business\nplaced with the insurer, is to be compen sated contingent upon the insurer's\nprofits on that business, then such compensation shall not be determined and\npaid until at least five (5) years after the premiums on liability insurance are\nearned and at least one (1) year after the premiums are earned  on any other\ninsurance. In no event shall the commissions be paid until the adequacy of the\ncontrolled insurer's reserves on remaining claims has been independently\nverified pursuant to subsection (3) of this section;\n(j) A limit on the controlling produc er's writings in relation to the controlled\ninsurer's surplus and total writings. The insurer may establish a different limit\nfor each line or subline of business. The controlled insurer shall notify the\ncontrolling producer when the applicable limit is ap proached and shall not\naccept business from the controlling producer if the limit is reached. The\ncontrolling producer shall not place business with the controlled insurer if it\nhas been notified by the controlled insurer that the limit has been reached; and\n(k) The controlling producer may negotiate, but shall not bind, reinsurance on\nbehalf of the controlled insurer on business the controlling producer places\nwith the controlled insurer, except that the controlling producer may bind\nfacultative reinsurance contracts pursuant to obligatory facultative agreements,\nif the contract with the controlled insurer contains underwriting guidelines, for\nboth reinsurance assumed and ceded, which include a list of reinsurers with\nautomatic agreements that are in effect , the coverages and amounts or\npercentages that may be reinsured, and commission schedules.\n(3) Every controlled insurer shall have an audit committee of the board of directors\ncomposed of independent directors. The audit committee shall annually meet with\nthe management, the insurer's independent certified public accountants, and an\nindependent casualty actuary or other independent loss reserve specialist acceptable\nto the commissioner to review the adequacy of the insurer's loss reserves.\n(4) Reporting requirements are as follows:\n(a) In addition to any other required loss reserve certification, the controlled\ninsurer shall annually, on April 1 of each year, file with the commissioner an\nopinion of an independent casualty actuary, or other independent loss  reserve\nspecialist acceptable to the commissioner, reporting loss ratios for each line of\nbusiness written and attesting to the adequacy of loss reserves established for\nlosses incurred and outstanding as of the end of the year, including incurred\nbut not reported losses, on business placed by the producer; and\n(b) The controlled insurer shall annually report to the commissioner the amount\nof commissions paid to the producer, the percentage that amount represents of\nthe net premiums written, and comparable  amounts and percentage paid to\nnoncontrolling producers for placements of the same kinds of insurance.","path":[],"source_url":"https://apps.legislature.ky.gov/law/statutes/statute.aspx?id=16735","current_through":"Includes enactments through the 2026 Regular Session","vintage":"09/05/2026","retrieved_at":"2026-09-05T20:57:37Z","sha256":"c8595c246359da6f0304d41891503f089222d3c594789e289df830423b7a5f67","source_id":"us-ky","stale":false,"prev":"us-ky/krs-304.3-405","next":"us-ky/krs-304.3-415"},"notice":"GroundRules: Original legal text. Not legal advice."}