HR 2126 IHCommentsClose CommentsPermalink

112th CONGRESSCommentsClose CommentsPermalink

1st SessionCommentsClose CommentsPermalink

H. R. 2126CommentsClose CommentsPermalink

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

IN THE HOUSE OF REPRESENTATIVESCommentsClose CommentsPermalink

June 3, 2011CommentsClose CommentsPermalink

Mr. CAMPBELL (for himself and Mr. WELCH) introduced the following bill; which was referred to the Committee on Financial ServicesCommentsClose CommentsPermalink

A BILLCommentsClose CommentsPermalink

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

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

SECTION 1. SHORT TITLE.

This Act may be cited as the ‘Risk Retention Modernization Act of 2011’.CommentsClose CommentsPermalink

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:CommentsClose CommentsPermalink

‘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.CommentsClose CommentsPermalink





‘(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.CommentsClose CommentsPermalink





‘(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.CommentsClose CommentsPermalink





‘(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).CommentsClose CommentsPermalink





‘(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.CommentsClose CommentsPermalink





‘(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.’.CommentsClose CommentsPermalink

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:CommentsClose CommentsPermalink

‘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:CommentsClose CommentsPermalink





‘(1) The governing body of a risk retention group shall at all times have a majority of independent directors.CommentsClose CommentsPermalink





‘(2) Any material relationship between a risk retention group and a service provider shall--CommentsClose CommentsPermalink





‘(A) be documented by a written contract that--CommentsClose CommentsPermalink





‘(i) is for a term of not more than 5 years; andCommentsClose CommentsPermalink





‘(ii) may be terminated at any time for cause after providing reasonable notice as set forth in the contract;CommentsClose CommentsPermalink





‘(B) be approved upon commencement and upon any renewal by a majority of the independent directors of the risk retention group; andCommentsClose CommentsPermalink





‘(C) be approved by the insurance commissioner of the State in which such risk retention group is chartered.CommentsClose CommentsPermalink





‘(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--CommentsClose CommentsPermalink





‘(A) providing oversight of--CommentsClose CommentsPermalink





‘(i) the integrity of financial statements;CommentsClose CommentsPermalink





‘(ii) compliance with legal and regulatory requirements;CommentsClose CommentsPermalink





‘(iii) the qualifications, independence, and performance of auditors and actuaries; andCommentsClose CommentsPermalink





‘(iv) the performance of service providers;CommentsClose CommentsPermalink





‘(B) reviewing the annual audited financial statements and quarterly statements with the management of the risk retention group;CommentsClose CommentsPermalink





‘(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;CommentsClose CommentsPermalink





‘(D) establishing policies with respect to risk assessment and risk management;CommentsClose CommentsPermalink





‘(E) meeting separately and periodically, either directly or through designated representatives of the committee, with the management and auditor of the risk retention group;CommentsClose CommentsPermalink





‘(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;CommentsClose CommentsPermalink





‘(G) establishing clear policies regarding the hiring of employees or former employees of the current or former auditor of the risk retention group;CommentsClose CommentsPermalink





‘(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; andCommentsClose CommentsPermalink





‘(I) reporting regularly to the governing body of the group regarding the matters described in subparagraphs (A) through (H).CommentsClose CommentsPermalink





‘(4) A risk retention group shall adopt and provide upon request to the members of such risk retention group governance standards that address--CommentsClose CommentsPermalink





‘(A) the means of providing evidence of the ownership interest of each member of the risk retention group;CommentsClose CommentsPermalink





‘(B) the process by which the governing body of the risk retention group is elected by the members of the risk retention group;CommentsClose CommentsPermalink





‘(C) qualification standards for and responsibilities of directors of the risk retention group;CommentsClose CommentsPermalink





‘(D) access to the management and independent advisors of the risk retention group by the directors of the risk retention group;CommentsClose CommentsPermalink





‘(E) compensation of directors of the risk retention group, if any;CommentsClose CommentsPermalink





‘(F) orientation and education of directors of the risk retention group;CommentsClose CommentsPermalink





‘(G) succession of management of the risk retention group; andCommentsClose CommentsPermalink





‘(H) annual performance evaluations of the management and officers of the risk retention group by the governing body of the risk retention group.CommentsClose CommentsPermalink





‘(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--CommentsClose CommentsPermalink





‘(A) conflicts of interest;CommentsClose CommentsPermalink





‘(B) corporate opportunities;CommentsClose CommentsPermalink





‘(C) confidentiality;CommentsClose CommentsPermalink





‘(D) fair dealing;CommentsClose CommentsPermalink





‘(E) protection and proper use of the assets of the risk retention group;CommentsClose CommentsPermalink





‘(F) compliance with applicable laws and regulations; andCommentsClose CommentsPermalink





‘(G) reporting of any illegal or unethical behavior which affects the operation of the risk retention group.CommentsClose CommentsPermalink





‘(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.CommentsClose CommentsPermalink





‘(b) Definitions- In this section:CommentsClose CommentsPermalink





‘(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).CommentsClose CommentsPermalink





‘(2) DIRECTOR- The term ‘director’ means a member of the governing body of a risk retention group.CommentsClose CommentsPermalink





‘(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--CommentsClose CommentsPermalink





‘(A) such risk retention group; orCommentsClose CommentsPermalink





‘(B) a service provider of such risk retention group.CommentsClose CommentsPermalink





‘(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--CommentsClose CommentsPermalink





‘(A) 5 percent or more of the gross written premiums of such risk retention group for such 12-month period; orCommentsClose CommentsPermalink





‘(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.CommentsClose CommentsPermalink





‘(5) MEMBER- The term ‘member’ means a person or entity that--CommentsClose CommentsPermalink





‘(A) is insured by a risk retention group; andCommentsClose CommentsPermalink





‘(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.CommentsClose CommentsPermalink





‘(6) SERVICE PROVIDER-CommentsClose CommentsPermalink





‘(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.CommentsClose CommentsPermalink





‘(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.CommentsClose CommentsPermalink





‘(c) Supersedure-CommentsClose CommentsPermalink





‘(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.CommentsClose CommentsPermalink





‘(2) DEFINITIONS- In this subsection:CommentsClose CommentsPermalink





‘(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.CommentsClose CommentsPermalink





‘(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.’.CommentsClose CommentsPermalink

SEC. 4. COMMERCIAL PROPERTY INSURANCE.

The Liability Risk Retention Act of 1986 (15 U.S.C. 3901 et seq.) is further amended--CommentsClose CommentsPermalink





(1) in section 2(a) (15 U.S.C. 3901(a))--CommentsClose CommentsPermalink





(A) in paragraph (4)--CommentsClose CommentsPermalink





(i) in subparagraph (C)(i), by striking ‘a liability’ and inserting ‘an’; andCommentsClose CommentsPermalink





(ii) in subparagraph (G)(i), by inserting ‘or commercial property’ after ‘liability’;CommentsClose CommentsPermalink





(B) in paragraph (5)(A), by inserting ‘or commercial property’ after ‘liability’;CommentsClose CommentsPermalink





(C) in paragraph (6), by striking ‘and’ at the end;CommentsClose CommentsPermalink





(D) in paragraph (7)(B), by striking the period at the end and inserting ‘; and’; andCommentsClose CommentsPermalink





(E) by adding at the end the following new paragraph:CommentsClose CommentsPermalink





‘(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.’;CommentsClose CommentsPermalink





(2) in section 3 (15 U.S.C. 3902)--CommentsClose CommentsPermalink





(A) in subsection (a)(1)(C), by inserting ‘or commercial property’ after ‘liability’;CommentsClose CommentsPermalink





(B) in subsection (b)(2), by inserting ‘or commercial property’ after ‘liability’ each place it appears; andCommentsClose CommentsPermalink





(C) in subsection (d)(1)(B), by inserting ‘or commercial property’ after ‘liability’;CommentsClose CommentsPermalink





(3) in section 4 (15 U.S.C. 3903)--CommentsClose CommentsPermalink





(A) in subsection (b)--CommentsClose CommentsPermalink





(i) in paragraph (1), by inserting ‘or commercial property’ after ‘liability’; andCommentsClose CommentsPermalink





(ii) in paragraph (2)--CommentsClose CommentsPermalink





(I) by redesignating subparagraphs (B) and (C) as subparagraphs (C) and (D), respectively; andCommentsClose CommentsPermalink





(II) by inserting after subparagraph (A) the following new subparagraph:CommentsClose CommentsPermalink





‘(B) commercial property insurance;’; andCommentsClose CommentsPermalink





(B) in subsection (d)(1)(B), by inserting ‘and commercial property’ after ‘liability’; andCommentsClose CommentsPermalink





(4) in section 6(b) (15 U.S.C. 3905(b)), by inserting ‘or commercial property’ after ‘liability’ each place it appears.CommentsClose CommentsPermalink

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:CommentsClose CommentsPermalink





(1) FINANCIAL STATEMENTS- In section 3(d)(3) (15 U.S.C. 3902(d)(3))--CommentsClose CommentsPermalink





(A) by redesignating subparagraphs (A) and (B) as clauses (i) and (ii), respectively, and moving the margins two ems to the right;CommentsClose CommentsPermalink





(B) by striking ‘which statement shall be certified’ and inserting ‘which statement shall--’CommentsClose CommentsPermalink





‘(A) be certified’;CommentsClose CommentsPermalink





(C) in subparagraph (A)(ii) (as redesignated by subparagraph (A)), by striking the period and inserting a semicolon; andCommentsClose CommentsPermalink





(D) by adding at the end the following new subparagraphs:CommentsClose CommentsPermalink





‘(B) be filed not later than the earlier of--CommentsClose CommentsPermalink





‘(i) June 30, for the preceding calendar year; orCommentsClose CommentsPermalink





‘(ii) such time as the State in which the risk retention group is chartered requires; andCommentsClose CommentsPermalink





‘(C) if not prepared in conformity with statutory accounting principles, include appropriate notes for conversion of such statement to statutory accounting principles.’.CommentsClose CommentsPermalink





(2) DISCLOSURE REQUIREMENTS- In section 3 (15 U.S.C. 3902)--CommentsClose CommentsPermalink





(A) in subsection (a)(1)--CommentsClose CommentsPermalink





(i) in subparagraph (G), by striking ‘jurisdiction;’ and inserting ‘jurisdiction; and’;CommentsClose CommentsPermalink





(ii) in subparagraph (H), by striking ‘impaired; and’ and inserting ‘impaired.’; andCommentsClose CommentsPermalink





(iii) by striking subparagraph (I); andCommentsClose CommentsPermalink





(B) by adding at the end the following new subsection:CommentsClose CommentsPermalink





‘(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 XXXXXX 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.’.CommentsClose CommentsPermalink





(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:CommentsClose CommentsPermalink





‘(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.’.CommentsClose CommentsPermalink





(4) UNDERSCORING THE EXEMPTION-CommentsClose CommentsPermalink





(A) RISK RETENTION GROUPS- In section 3 (15 U.S.C. 3902)--CommentsClose CommentsPermalink





(i) in subsection (a) in the matter preceding paragraph (1), by striking ‘Except as provided’ and inserting ‘Except as specifically provided’; andCommentsClose CommentsPermalink





(ii) in subsection (f)(1), by inserting ‘or purchasing group’ after ‘risk retention group’.CommentsClose CommentsPermalink





(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’.CommentsClose CommentsPermalink





(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.’.CommentsClose CommentsPermalink

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’.CommentsClose CommentsPermalink

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.CommentsClose CommentsPermalink