1.This Act may be cited as the
Risk Retention Modernization Act of
2011
.
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 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)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)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 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).
(e)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 proceduresNot 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.
.
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 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)In
this section:
(1)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)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; or
(B)a service provider
of such risk retention group.
(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)
(A)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)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)
(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(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.
5.Financial
statements; disclosure requirements; fiduciary duty; and underscoring the
exemptionThe Liability Risk
Retention Act of 1986 (15 U.S.C. 3901 et seq.) 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 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)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
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)In section 3 (15 U.S.C. 3902), as amended by paragraph (2),
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
.
(B)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)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.
.
6.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
.
7.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.