                                 CODE OF VIRGINIA

MINIMUM STANDARDS (§ 38.2-1343)

A. The provisions of this section shall apply if, in any calendar year, the
aggregate amount of gross written premium on business placed with a controlled
insurer by a controlling producer is equal to or greater than five percent of
the admitted assets of the controlled insurer, as reported in the controlled
insurer&#8217;s quarterly statement filed as of September 30 of the prior year.

B. Notwithstanding the provisions of subsection A of this section, the
provisions of subsections A, C, D and E of this section shall not apply if:

   1. The controlling producer (i) places insurance only with the controlled
   insurer, or only with the controlled insurer and a member or members of the
   controlled insurer&#8217;s holding company system, or the controlled
   insurer&#8217;s parent, affiliate or subsidiary and receives no compensation
   based upon the amount of premiums written in connection with such insurance
   and (ii) accepts insurance placements only from nonaffiliated subproducers and
   not directly from insureds; and

   2. The controlled insurer, except for insurance business written through a
   residual market facility such as the Virginia Automobile Insurance Plan, as
   set forth in &#xA7; 38.2-2015, or the Virginia Property Insurance Association,
   as set forth in Chapter 27 (&#xA7; 38.2-2700 et seq.), accepts insurance
   business only from a controlling producer, a producer controlled by the
   controlled insurer, or a producer that is a subsidiary of the controlled
   insurer.

C. A controlled insurer shall not accept business from a controlling producer
and a controlling producer shall not place business with a controlled insurer
unless there is a written contract between them specifying the responsibilities
of each party, which contract has been approved by the board of directors of the
insurer and contains the following minimum provisions:

   1. The controlled insurer may terminate the contract for cause, upon written
   notice to the controlling producer. The controlled insurer shall suspend the
   authority of the controlling producer to write business during the pendency of
   any dispute regarding the cause for the termination;

   2. The controlling producer shall render accounts to the controlled insurer
   detailing all material transactions, including information necessary to
   support all commissions, charges and other fees received by, or owing to, the
   controlling producer;

   3. The controlling producer shall remit all funds due under the terms of the
   contract to the controlled insurer on at least a monthly basis. The due date
   shall be fixed so that premiums or installments thereof collected shall be
   remitted no later than ninety days after the effective date of any policy
   placed with the controlled insurer under this contract;

   4. All funds collected for the controlled insurer&#8217;s account shall be
   held by the controlling producer in a fiduciary capacity, in one or more
   appropriately identified bank accounts in banks that are members of the
   Federal Reserve System, in accordance with the provisions of the insurance law
   as applicable. However, funds of a controlling producer not required to be
   licensed in this Commonwealth shall be maintained in compliance with the
   requirements of the controlling producer&#8217;s domiciliary jurisdiction;

   5. The controlling producer shall maintain separately identifiable records of
   business written for the controlled insurer;

   6. The contract shall not be assigned in whole or in part by the controlling
   producer;

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

   8. The rates and terms of the controlling producer&#8217;s commissions,
   charges or other fees and the purposes for those charges or fees shall be
   specified. The rates of the commissions, charges and other fees shall be no
   greater than those applicable to comparable business placed with the
   controlled insurer by producers other than controlling producers. For purposes
   of this subdivision and subdivision 7 of this subsection, examples of
   &#8220;comparable business&#8221; include the same lines of insurance, same
   kinds of insurance, same kinds of risks, similar policy limits, and similar
   quality of business;

   9. If the contract provides that the controlling producer, on insurance
   business placed with the insurer, is to be compensated contingent upon the
   insurer&#8217;s profits on that business, then such compensation shall not be
   determined and paid until at least five years after the premiums on liability
   insurance are earned and at least one year after the premiums are earned on
   any other insurance. In no event shall the commissions be paid until the
   adequacy of the controlled insurer&#8217;s reserves on remaining claims has
   been independently verified pursuant to subdivision 1 of subsection E of this
   section;

   10. The contract shall place a limit on the controlling producer&#8217;s
   writings in relation to the controlled insurer&#8217;s surplus and total
   writings. The insurer may establish a different limit for each line or
   sub-line of business. The controlled insurer shall notify the controlling
   producer when the applicable limit is approached and shall not accept business
   from the controlling producer if the limit is reached. The controlling
   producer shall not place business with the controlled insurer if it has been
   notified by the controlled insurer that the limit has been reached; and

   11. The controlling producer may negotiate but shall not bind reinsurance on
   behalf of the controlled insurer on business the controlling producer places
   with the controlled insurer, except that the controlling producer may bind
   facultative reinsurance contracts pursuant to obligatory facultative
   agreements if the contract with the controlled insurer contains 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.

D. Every controlled insurer shall have an Audit Committee of the Board of
Directors composed of independent directors. The Audit Committee shall annually
meet with management, the insurer&#8217;s independent certified public
accountants, and an independent casualty actuary or other independent loss
reserve specialist acceptable to the Commission to review the adequacy of the
insurer&#8217;s loss reserves.

E. The controlled insurer shall obtain annually prior to March 1 of each year
the following data and reports:

   1. In addition to any other required loss reserve certification, an opinion of
   an independent casualty actuary reporting loss ratios for each line of
   business written and attesting to the adequacy of loss reserves established
   for losses incurred and outstanding as of year&#8217;s end (including incurred
   but not reported) on business placed by the producer; and

   2. The controlled insurer shall annually report to the Commission the amount
   of commissions paid to the producer during the preceding calendar year, the
   percentage such amount represents of the net premiums written and comparable
   amounts and percentage paid to noncontrolling producers for placements of the
   same kinds of insurance.
   				The data and reports required by this subsection shall be retained by the
   insurer for a period of not less than five years and shall be filed with the
   Commission upon request.

HISTORY: 1993, c. 158.