Section 174I. (A)(1) The provisions of section one hundred and seventy-four I shall apply if, in any calendar year, the aggregate amount of gross written premium on business placed with a controlled insurer by controlling broker is equal to or greater than five percent of the admitted assets of the controlled insurer, as reported in the controlled insurers’ quarterly statement filed as of September thirtieth of the prior year.

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(2) Notwithstanding paragraph (1) the provisions of subsection A shall not apply if:

(a) the controlling broker:

(i) places insurance only with the controlled insurer, or only with the controlled insurer and a member or members of the controlled insurer’s holding company system, or the controlled insurer’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 non-affiliated subproducers, and not directly from insureds; and

(b) the controlled insurer, except for insurance business written through a residual market facility such as the Massachusetts Property Insurers Underwriting Association, accepts insurance business only from a controlling broker, a broker controlled by the controlled insurer, or a broker that is a subsidiary of the controlled insurer.

(B) A controlled insurer shall not accept business from a controlling broker and a controlling broker shall not place business with a controlled insurer unless there is a written contract between the controlling broker and the insurer which specifies the responsibilities of each party, and has been approved by the board of directors of the insurer. The contract shall contain the following minimum provisions:

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

(2) the controlling broker 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 broker;

(3) the controlling broker 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’s account shall be held by the controlling broker in a fiduciary capacity, in one or more appropriately identified bank accounts in banks that are members of the Federal Reserve System. Funds of a controlling broker not required to be licensed in the commonwealth shall be maintained in compliance with the requirements of the controlling broker’s domiciliary jurisdiction;

(5) the controlling broker shall maintain separate identifiable records of business written for the controlled insurer;

(6) the contract shall not be assigned in whole or in part by the controlling broker;

(7) the controlled insurer shall provide the controlling broker 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 broker 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 broker other than the controlling broker;

(8) the contract shall establish the rates and terms of the controlling broker’s commissions, charges or other fees and the purposes for those charges or fees. 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 brokers other than controlling brokers. For purposes of clauses (7) and (8), examples of comparable business include the same lines of insurance, same kinds of insurance, similar risks, similar policy limits, and similar quality of business;

(9) if the contract provides that the controlling broker, on insurance business placed with the insurer, is to be compensated contingent upon the insurer’s profits on that business, then such compensations 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’s reserves on remaining claims has been independently verified pursuant to paragraph (1) of subsection D;

(10) the contract shall establish a limit on the controlling broker’s writings in relation to the controlled insurer’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 broker when the applicable limit is approached and shall not accept business from the controlling broker if the limit is reached. The controlling broker shall not market or place business with the controlled insurer if it has been notified by the controlled insurer that the limit has been reached; and

(11) the contract shall provide that the controlling broker may negotiate but shall not bind reinsurance on behalf of the controlled insurer on business the controlling broker places with the controlled insurer, except that the controlling broker 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.

(C) 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’s independent certified public accountants, and an independent casualty actuary or other independent loss reserve specialist acceptable to the commissioner to review the adequacy of the insurer’s loss reserves.

(D)(1) In addition to any other required loss reserve certification, the controlled insurer shall annually, by April first of each year, file with the commissioner an opinion of an independent casualty actuary or such other independent loss reserve specialist acceptable to the commissioner 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-end, including incurred but not reported, on business placed by the broker; and

(2) The controlled insurer shall annually report to the commissioner the amount of commissions paid to the broker, the percentage such amount represents of the net premiums written and comparable amounts and percentage paid to noncontrolling brokers for placements of the same kinds of insurance.