Risk Retention Modernization Act of 2011 - Amends the Liability Risk Retention Act of 1986 to require the Director of the Federal Insurance Office to: (1) report periodically to the President and Congress on the extent of state compliance with the Act's prohibition against state regulation of risk retention and purchasing groups that are not domiciliaries of the state; and (2) issue certain corporate governance standards, meeting specified criteria, for risk retention groups.
Extends the coverage of the Act to risk retention groups offering commercial property insurance. Applies to commercial property insurance the exemption of purchasing groups from state law.
Revises procedures for: (1) submitting financial documents to state insurance commissioners, and (2) mandatory disclosures.
Imposes a fiduciary duty upon the board of directors of a risk retention group to operate in the best interests of the group.
Redesignates the Act as the Risk Retention Act.
[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.
<all>
Introduced in House
Introduced in House
Referred to the House Committee on Financial Services.
Referred to the Subcommittee on Insurance, Housing and Community Opportunity.
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