[Congressional Bills 112th Congress]
[From the U.S. Government Publishing Office]
[H.R. 2126 Introduced in House (IH)]

112th CONGRESS
  1st Session
                                H. R. 2126

   To modernize the Liability Risk Retention Act of 1986 and expand 
   coverage to include commercial property insurance, and for other 
                               purposes.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                              June 3, 2011

Mr. Campbell (for himself and Mr. Welch) introduced the following bill; 
       which was referred to the Committee on Financial Services

_______________________________________________________________________

                                 A BILL


 
   To modernize the Liability Risk Retention Act of 1986 and expand 
   coverage to include commercial property insurance, and for other 
                               purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Risk Retention Modernization Act of 
2011''.

SEC. 2. OVERSIGHT OF COMPLIANCE WITH PREEMPTION OF STATE LAW UNDER THE 
              LIABILITY RISK RETENTION ACT OF 1986.

    The Liability Risk Retention Act of 1986 (15 U.S.C. 3901 et seq.) 
is amended by adding at the end the following new section:

``SEC. 8. OVERSIGHT OF COMPLIANCE WITH PREEMPTION OF STATE LAW.

    ``(a) Survey.--The Director of the Federal Insurance Office shall 
periodically survey and evaluate the extent to which each State is in 
compliance with the prohibition under this Act regarding State 
regulation of risk retention groups and purchasing groups that are not 
domiciliaries of such State and submit to the President and Congress a 
report on such compliance.
    ``(b) Disputes.--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 Director of the Federal Insurance Office to 
request a determination as to whether the regulation at issue is 
preempted by this Act.
    ``(c) Standard.--The Director of the Federal Insurance Office may 
only issue a determination under subsection (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) Applicability of Administrative Procedures Act.--
Determinations 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).
    ``(e) Judicial Review.--Any party to the dispute described in 
subsection (b) may seek review of a final order of the Director of the 
Federal Insurance Office under such subsection in the United States 
Court of Appeals for the District of Columbia Circuit.
    ``(f) Regulations, Policies, and Procedures.--Not later than 90 
days after the effective date described in section 7 of the Risk 
Retention Modernization Act of 2011, the Director of the Federal 
Insurance Office shall publish in the Federal Register final 
regulations, policy statements, guidelines, or procedures to implement 
this section.''.

SEC. 3. CORPORATE GOVERNANCE STANDARDS.

    The 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:

``SEC. 9. CORPORATE GOVERNANCE STANDARDS.

    ``(a) Governance Standards.--The Director of the Federal Insurance 
Office shall, not later than 30 days after the effective date described 
in section 7 of the Risk Retention Modernization Act of 2011, issue 
corporate governance standards for risk retention groups, which shall 
include the following requirements:
            ``(1) The governing body of a risk retention group shall at 
        all times have a majority of independent directors.
            ``(2) Any material relationship between 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 
                the risk retention group; and
                    ``(C) be approved by the insurance commissioner of 
                the State in which such risk retention group 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;
                    ``(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 5 
                consecutive years; and
                    ``(I) reporting regularly to the governing body of 
                the group regarding the matters described in 
                subparagraphs (A) through (H).
            ``(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 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 and officers 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 addresses--
                    ``(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.
            ``(6) Any manager or chief executive officer of a risk 
        retention group shall promptly notify the insurance 
        commissioner of the State in which the group is chartered in 
        writing if the manager or officer becomes aware of any material 
        noncompliance with any governance standard required by this 
        section and such noncompliance is not cured within a reasonable 
        period from the time it is detected, but not to exceed 60 days.
    ``(b) Definitions.--In this section:
            ``(1) Auditor.--The term `auditor' means the person 
        providing certification of the annual financial statement of a 
        risk retention group to the insurance commissioner of each 
        State as required by section 3(d)(3).
            ``(2) Director.--The term `director' means a member of the 
        governing body of a risk retention group.
            ``(3) Independent director.--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; or
                    ``(B) a service provider of such risk retention 
                group.
            ``(4) Material relationship.--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) Member.--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) Service provider.--
                    ``(A) In general.--The term `service provider' 
                means 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) Exception.--The term `service provider' 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 the 
                counsel having a material relationship with the risk 
                retention group.
    ``(c) Supersedure.--
            ``(1) In general.--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) Definitions.--In this subsection:
                    ``(A) State.--The term `State' includes a State and 
                the District of Columbia, any political subdivisions 
                thereof, and any agency or instrumentality of a State.
                    ``(B) State law.--The term `State law' includes all 
                laws, decisions, rules, regulations, or other State 
                action having the effect of law, of any State.''.

SEC. 4. COMMERCIAL PROPERTY INSURANCE.

    The Liability Risk Retention Act of 1986 (15 U.S.C. 3901 et seq.) 
is further amended--
            (1) in section 2(a) (15 U.S.C. 3901(a))--
                    (A) 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'';
                    (B) in paragraph (5)(A), by inserting ``or 
                commercial property'' after ``liability'';
                    (C) in paragraph (6), by striking ``and'' at the 
                end;
                    (D) in paragraph (7)(B), by striking the period at 
                the end and inserting ``; and''; and
                    (E) 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, loss of, 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, loss of, 
        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.'';
            (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)(2), 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.

SEC. 5. FINANCIAL STATEMENTS; DISCLOSURE REQUIREMENTS; FIDUCIARY DUTY; 
              AND UNDERSCORING THE EXEMPTION.

    The Liability Risk Retention Act of 1986 (15 U.S.C. 3901 et seq.) 
is amended as follows:
            (1) Financial statements.--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 redesignated by 
                subparagraph (A)), 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 30, for the preceding calendar 
                        year; or
                            ``(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) Disclosure requirements.--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) Disclosure Requirements.--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 is not 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) Fiduciary duty.--In section 3 (15 U.S.C. 3902), as 
        amended by paragraph (2), by adding at the end the following 
        new subsection:
    ``(j) Fiduciary Duty.--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) Risk retention groups.--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''.
                    (B) Purchasing groups.--In section 4(a) (15 U.S.C. 
                3903(a)), in the matter preceding paragraph (1), by 
                striking ``Except as provided'' and inserting ``Except 
                as specifically provided''.
            (5) Financial responsibility.--Section 6(d) (15 U.S.C. 
        3905(d)) is amended by adding at the end the following: ``Such 
        means may not include requirements that risk retention groups 
        be licensed or admitted by that State as a demonstration of 
        financial responsibility.''.

SEC. 6. AMENDMENT TO SHORT TITLE.

    Section 1 of the Liability Risk Retention Act of 1986 (15 U.S.C. 
3901 note) is amended by striking ``Liability Risk Retention Act of 
1986'' and inserting ``Risk Retention Act of 1986''.

SEC. 7. EFFECTIVE DATE.

    The amendments made by sections 2, 3, 4, and 5 shall take effect on 
the date that is 18 months after the date of the enactment of this Act.
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