1.This Act may be cited as the
Risk Retention Modernization Act of
2010
.
2.Oversight of
compliance with preemption of State law under the Liability Risk Retention Act
of 1986The Liability Risk Retention Act of 1986 (15
U.S.C. 3901 et seq.) is amended by adding at the end the following new
section:
8.Oversight of compliance with preemption of State
law(a)The Secretary of the Treasury shall survey
and evaluate the extent to which States are in compliance with the prohibition
under this Act of State regulation of risk retention groups and purchasing
groups that are not domiciliaries of such State and periodically submit to the
President and Congress reports on such compliance.
(b)In
any dispute in which an issue arises of whether this Act preempts the
regulation of a risk retention group or purchasing group by a State, any party
to the dispute may make a written submission to the Secretary of the Treasury
to request a determination as to whether the regulation at issue is preempted
by this Act.
(c)The
Secretary of Treasury may only issue a determination under paragraph (b) that
the regulation at issue is preempted by this Act if the regulation imposes a
requirement upon the risk retention group that is inconsistent with the
provisions of this Act.
(d)Regulations,
policies, and proceduresNot later than 90 days after the
effective date in section 11 of the Risk
Retention Modernization Act of 2010, the Secretary of the
Treasury shall publish in the Federal Register final regulations, policy
statements, guidelines, or procedures to implement this section.
(e)Applicability of
Administrative Procedures ActDeterminations issued pursuant to
subsection (b) shall be subject to the applicable provisions of subchapter II
of chapter 5 of title 5, United States Code (relating to administrative
procedure).
(f)Any party to the dispute may seek review of a final order
of the Secretary of the Treasury under subsection (b) in the United States
Court of Appeals for the District of Columbia
Circuit.
.
3.Corporate
governance standardsThe
Liability Risk Retention Act of 1986 (15 U.S.C. 3901 et seq.), as amended by
section 2 of this Act, is further amended by adding at the end the following
new section:
9.
Corporate governance standards
(a)The Secretary of
the Treasury shall, not later 30 days after the effective date in section 11 of
the Risk Retention Modernization Act of
2010, issue corporate governance standards for risk retention
groups, which shall include requirements that—
(1)the governing body
of a risk retention group shall at all times include a majority of independent
directors;
(2)any material
relationship between a director of a risk retention group and a service
provider shall—
(A)be documented by a
written contract that—
(i)is
for a term of not more than 5 years; and
(ii)may be terminated
at any time for cause after providing reasonable notice as set forth in the
contract;
(B)be approved upon
commencement and upon any renewal by a majority of the independent directors of
a risk retention group; and
(C)be approved by the
insurance commissioner of the State in which such service provider is
chartered;
(3)unless the
insurance commissioner of the State in which the risk retention group is
chartered permits the governing body of a risk retention group to exercise the
function as a whole, such risk retention group shall have an audit committee of
its governing body with a written charter defining the purposes of the
committee, which shall include—
(A)providing
oversight of—
(i)the integrity of
financial statements;
(ii)compliance with
legal and regulatory requirements;
(iii)the
qualifications, independence, and performance of auditors and actuaries;
and
(iv)the performance
of service providers; and
(B)reviewing the
annual audited financial statements and quarterly statements with the
management of the risk retention group;
(C)reviewing the
annual audited financial statements with the auditor of the risk retention
group and, if advisable, reviewing quarterly financial statements with such
auditor;
(D)establishing
policies with respect to risk assessment and risk management;
(E)meeting separately
and periodically, either directly or through designated representatives of the
committee, with the management and auditor of the risk retention group;
(F)reviewing with the
auditor of the risk retention group any audit problems or difficulties and the
response to such problems or difficulties by the management of the risk
retention group;
(G)establishing clear
policies regarding the hiring of employees or former employees of the current
or former auditor of the risk retention group;
(H)requiring, through
contract or negotiation, the auditor of the risk retention group to rotate
partners with primary responsibility for the audit of the risk retention group
and the partner responsible for reviewing such audit, in order to assure that
no individual performs these services for more than five consecutive years;
and
(I)reporting
regularly on the foregoing matters to the governing body of the group;
(4)a risk retention
group shall adopt and provide upon request to the members of such risk
retention group governance standards that address—
(A)the means of
providing evidence of each the ownership interest of each member of the risk
retention group;
(B)the process by
which the governing body of the risk retention group is elected by the members
of the risk retention group;
(C)qualification
standards for and responsibilities of directors of the risk retention
group;
(D)access to the
management and independent advisors of the risk retention group by the
directors of the risk retention group;
(E)compensation of
directors of the risk retention group, if any;
(F)orientation and
education of directors of the risk retention group;
(G)succession of
management of the risk retention group; and
(H)annual performance evaluations of the
management, officers, and members of the risk retention group by the governing
body of the risk retention group;
(5)a risk retention
group shall adopt a code of business conduct and ethics applicable to
directors, officers, and employees of the risk retention group that
address—
(A)conflicts of
interest;
(B)corporate
opportunities;
(C)confidentiality;
(D)fair
dealing;
(E)protection and
proper use of the assets of the risk retention group;
(F)compliance with
applicable laws and regulations; and
(G)reporting of any
illegal or unethical behavior which affects the operation of the risk retention
group; and
(6)any manager or
chief executive officer of a risk retention group shall promptly notify the
domestic regulator in writing if either becomes aware of any material
noncompliance with any governance standard required by this section, if such
noncompliance is not cured within a reasonable period from detection not to
exceed 60 days.
(b)In
this section:
(1)The term auditor means the
person providing certification of the annual financial statement of a risk
retention group provided to a State in section 3(d)(3).
(2)The term director means a
member of the governing body of a risk retention group.
(3)The term
independent director means a director of a risk retention group
that the governing body of such risk retention group determines has no material
relationship with—
(A)such risk
retention group;
(B)a member of such
risk retention group; or
(C)an officer,
director, or employee of such member.
(4)The term
material relationship means a relationship between an entity or an
individual and a risk retention group where such entity or individual, or a
member of the immediate family of such individual or any business with which
such individual or entity is affiliated, receives compensation or payment from
such risk retention group during any 12-month period in an amount of—
(A)5 percent or more
of the gross written premiums of such risk retention group for such 12-month
period; or
(B)2 percent or more
of the surplus of such risk retention group as measured at the end of any
fiscal quarter falling within such 12-month period.
(5)The term member means a person
or entity that—
(A)is insured by a
risk retention group; and
(B)maintains an
ownership interest in such risk retention group in accordance with the laws of
the State in which such risk retention group is domiciled.
(6)The term
service provider means—
(A)a provider of
regular ongoing insurance, corporate, or regulatory services to a risk
retention group, including management companies, auditors, accountants,
actuaries, investment advisors, lawyers, manager general underwriters, and any
other parties responsible for underwriting, determining rates, collecting
premiums, adjusting and settling claims or the preparation of financial
statements;
(B)does not include
defense counsel retained by a risk retention group to defend claims, unless the
amount of fees paid to such counsel would otherwise result in it having a
material relationship with the risk retention group.
(c)
(1)The provisions of
this section shall supersede any State law relating to the corporate governance
standards required for risk retention groups and purchasing groups.
(2)In this subsection:
(A)The
term State includes a State and the District of Columbia, any
political subdivisions thereof, and any agency or instrumentality of a
State.
(B)The term State law includes all laws, decisions,
rules, regulations, or other State action having the effect of law, of any
State.
.
4.Commercial
property insuranceThe
Liability Risk Retention Act of 1986 (15 U.S.C. 3901 et seq.) is further
amended—
(1)in section 2 (15
U.S.C. 3901)—
(A)in subsection
(a)—
(i)in
paragraph (4)—
(I)in subparagraph
(C)(i) by striking a liability
and inserting an
;
and
(II)in subparagraph
(G)(i), by inserting or commercial property
after
liability
;
(ii)in
paragraph (5)(A), by inserting or commercial property
after
liability
;
(iii)in
paragraph (6), by striking and
at the end;
(iv)in
paragraph (7)(B), by striking the final period and inserting ;
and
; and
(v)by
adding at the end the following new paragraph:
(8)commercial
property insurance means insurance that indemnifies a business,
nonprofit organization, or governmental entity for damage to, theft of, or
destruction of real property or business property, owned by or leased to such
business, nonprofit organization, or governmental entity, including insurance
that indemnifies a business, nonprofit organization, or governmental entity for
damage to, theft of, or destruction of furniture, fixtures, and inventory, from
any and all perils or causes of loss and against consequential loss or damage,
including business interruption, other than noncontractual legal liability for
such loss or damage.
;
and
(B)in subsection (b),
by inserting , commercial property
after of
liability
;
(2)in section 3 (15
U.S.C. 3902)—
(A)in subsection
(a)(1)(C), by inserting or commercial property
after
liability
;
(B)in subsection (b),
by inserting or commercial property
after
liability
each place it appears; and
(C)in subsection
(d)(1)(B), by inserting or commercial property
after
liability
;
(3)in section 4 (15
U.S.C. 3903)—
(A)in subsection
(b)—
(i)in
paragraph (1), by inserting or commercial property
after
liability
; and
(ii)in
paragraph (2)—
(I)by redesignating
subparagraphs (B) and (C) as subparagraphs (C) and (D), respectively;
and
(II)by inserting
after subparagraph (A) the following new subparagraph:
(B)commercial
property insurance;
;
and
(B)in subsection
(d)(1)(B), by inserting and commercial property
after
liability
; and
(4)in section 6(b)
(15 U.S.C. 3905(b)), by inserting or commercial property
after
liability
each place it appears.
5.Financial
statements; disclosure requirements; fiduciary duty; and underscoring the
exemptionThe Liability Risk
Retention Act of 1986 is amended as follows:
(1)In section 3(d)(3) (15 U.S.C. 3902(d)(3))—
(A)by redesignating
subparagraphs (A) and (B) as clauses (i) and (ii), respectively, and moving the
margins two ems to the right;
(B)by striking
which statement shall be certified
and inserting which
statement shall—
(A)be
certified
;
(C)in subparagraph
(A)(ii) (as designated by subparagraphs (A) and (B)), by striking the period
and inserting a semicolon; and
(D)by adding at the
end the following new subparagraphs:
(B)be filed not later
than the earlier of—
(i)June 1, for the
preceding calendar year; and
(ii)such time as the
State in which the risk retention group is chartered requires; and
(C)if not prepared in
conformity with statutory accounting principles, include appropriate notes for
conversion of such statement to statutory accounting
principles.
.
(2)In section 3 (15 U.S.C. 3902)—
(A)in subsection
(a)(1)—
(i)in
subparagraph (G), by striking jurisdiction;
and inserting
jurisdiction; and
;
(ii)in
subparagraph (H), by striking impaired; and
and inserting
impaired.
; and
(iii)by
striking subparagraph (I); and
(B)by adding at the
end the following new subsection:
(i)Each risk
retention group shall provide to each member of such group, on the front page
and the declaration page of each insurance policy issued by such group, in bold
12-point or larger type, the following notice: This policy is issued by
your risk retention group of which you are a part owner. Your risk retention
group is primarily regulated under the laws of ______ and may not be subject to
all of the insurance laws and consumer protections of your State. If your risk
retention group fails, it may not be protected by a State insurance insolvency
guaranty fund.
. The risk retention group shall insert the name of the
State in which the risk retention group is chartered or licensed in place of
the blank
space.
.
(3)In section 3 (15 U.S.C. 3902) by adding at the end the
following new subsection:
(j)The board of
directors of a risk retention group shall have a fiduciary duty to operate in
the best interests of the
group.
.
(4)Underscoring the
exemption(A)in section 3 (15 U.S.C.
3902)—
(i)in
subsection (a) in the matter preceding paragraph (1), by striking Except
as provided
and inserting Except as specifically
provided
; and
(ii)in
subsection (f)(1), by inserting or purchasing group
after
risk retention group
; and
(B)in section 4(a) in the matter
preceding paragraph (1) (15 U.S.C. 3903(a)), by striking Except as
provided
and inserting Except as specifically
provided
.
6.Study on unlawful
State regulation of risk retention groups
(a)The Comptroller General of the United
States shall conduct a study of—
(1)instances where
nondomiciliary States attempt to unlawfully regulate, directly or indirectly,
the operation of risk retention groups through unilateral cease and
desist
orders or other means;
(2)costs to risk
retention groups associated with State actions referred to in paragraph (A)
above, including but not limited to legal fees and cessation of business
operations;
(3)the ability of
risk retention groups to pay for costs associated with challenging
nondomiciliary States that violate the Liability Risk Retention Act of 1986 (15
U.S.C. 3901 et seq.) by applying their laws in an extra-territorial manner;
and
(4)possible
legislative solutions that would reinforce and underscore the foundation of the
Liability Risk Retention Act of 1986, which exempts risk retention groups and
purchasing groups from laws of a State other than their chartering State,
except as specifically provided in the Act as well as ways to reduce or
eliminate costs if a particular risk retention group prevails in a State or
Federal court of competent jurisdiction.
(b)Not later than 1 year after the date of the
enactment of this Act, the Comptroller General shall submit to the Committee on
Banking, Housing, and Urban Affairs of the Senate and the Committee on
Financial Services of the House of Representatives a report containing the
results of the study under subsection (a) and any recommendations for actions
that Congress should consider to ensure that States do not interfere with or
regulate, directly or indirectly, risk retention groups or purchasing groups in
an extra-territorial manner precluded by sections 3 and section 4 of the
Liability Risk Retention Act of 1986 (15 U.S.C. 3902 and 3903).
(c)In
this section, the terms risk retention group and purchasing
group have the meaning given such terms in section 2 of the Liability
Risk Retention Act of 1986 (15 U.S.C. 3901).
7.Technical
correction and amendment to short title
(a)Section 3(a)(1) of the Liability Risk Retention Act of
1986 (15 U.S.C. 3902(a)(1)) is amended by striking many
and
inserting any
.
(b)Section 1 of the Liability Risk Retention Act of 1986 (15
U.S.C. 3901 note) is amended by striking Liability Risk Retention
Act
and inserting Risk Retention Act
.
8.The amendments made by
sections 3, 4, and 5 shall take effect on the date that is 18 months after the
date of the enactment of this Act.