Risk Retention Modernization Act of 2010 - Amends the Liability Risk Retention Act of 1986 to direct the Secretary of the Treasury to: (1) report periodically to the President and Congress on the extent of state compliance with the Act's prohibition of 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.
Directs the Comptroller General to study and report to Congress on actions to ensure that states do not interfere with or regulate risk retention or purchasing groups in an extraterritorial manner precluded by the Act.
Redesignates the Act as the Risk Retention Act.
[Congressional Bills 111th Congress]
[From the U.S. Government Publishing Office]
[H.R. 4802 Introduced in House (IH)]
111th CONGRESS
2d Session
H. R. 4802
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
March 10, 2010
Mr. Moore of Kansas (for himself, Mr. Campbell, and Ms. Kosmas)
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
2010''.
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:
``oversight of compliance with preemption of state law
``Sec. 8. (a) Survey.--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) 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 Secretary of the Treasury to request a
determination as to whether the regulation at issue is preempted by
this Act.
``(c) Standard.--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 Procedures.--Not 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 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).
``(f) Judicial Review.--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.''.
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:
``corporate governance standards
``Sec. 9.
``(a) Governance Standards.--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) Definitions.--In this section:
``(1) Auditor.--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) 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;
``(B) a member of such risk retention group; or
``(C) an officer, director, or employee of such
member.
``(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.--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) 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 (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.
SEC. 5. FINANCIAL STATEMENTS; DISCLOSURE REQUIREMENTS; FIDUCIARY DUTY;
AND UNDERSCORING THE EXEMPTION.
The Liability Risk Retention Act of 1986 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 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) 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) 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) Fiduciary duty.--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''.
SEC. 6. STUDY ON UNLAWFUL STATE REGULATION OF RISK RETENTION GROUPS.
(a) Study.--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) Report.--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) Definitions.--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).
SEC. 7. TECHNICAL CORRECTION AND AMENDMENT TO SHORT TITLE.
(a) Technical Correction.--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) 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'' and inserting ``Risk Retention Act''.
SEC. 8. EFFECTIVE DATE.
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.
<all>
Introduced in House
Introduced in House
Referred to the House Committee on Financial Services.
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