§36-6454.1. Risk retention groups – Governance standards.
1,566 words·~7 min read·
/ok/title-36-insurance/36-6454-1·A research copy — for the controlling text, always check the official state or federal source. Not legal advice.
A. For the purposes of this section:
1. "Board of Directors" or "Board" means the governing body of the risk retention group elected by the shareholders or members to establish policy, elect or appoint officers and committees, and make other governing decisions;
2. "Director" means a natural person designated in the articles of the risk retention group, or designated, elected or appointed by any other manner, name or title to act as a director;
3. "Disclose" means making information available through electronic or any other means the Board determines is necessary; and
4. "Service Providers" means captive managers, auditors, accountants, actuaries, investment advisors, lawyers, managing general underwriters or other parties responsible for underwriting, determination of rates, collection of premiums, adjusting and settling claims and/or the preparation of financial statements.
B. Existing risk retention groups shall comply with the following governance standards within one year of the effective date of this act. Risk retention groups licensed on or after the effective date of this act shall be in compliance with the standards at the time of licensure.
C. The Board of Directors of the risk retention group shall be composed of a majority of independent directors. No director shall qualify as independent unless the Board affirmatively determines that the director has no material relationship with the risk retention group. Each risk retention group shall disclose these determinations to its domestic regulator at least annually. Notwithstanding any other provision of law, a person that is a direct or indirect owner of or subscriber in the risk retention group, or is an officer, director or employee of such an owner and insured, is considered to be independent unless some other position
of such officer, director or employee constitutes a material relationship. Material relationship of a person with the risk retention group shall include, but is not limited to:
1. The receipt in any one twelve
(12)month period of compensation or payment of any other item of value by such person, a member of such person's immediate family or any business with which the person is affiliated from the risk retention group or a consultant or service provider to the risk retention group is greater than or equal to five percent (5%) of the risk retention group's gross written premium for the twelve
(12)month period or two percent (2%) of its surplus, whichever is greater, as measured at the end of any fiscal quarter falling in the twelve
(12)month period. The person or immediate family member of such person is not independent until one year after his or her compensation from the risk retention group falls below the threshold provided in this paragraph.
2. A relationship with a director or an immediate family member of a director who is affiliated with or employed in a professional capacity by a present or former internal or external auditor of the risk retention group is not independent until one year after the end of the affiliation, employment or auditing relationship.
3. A relationship with a director or immediate family member of a director who is employed as an executive officer of another company where any of the risk retention group's present executives serve on the other company's Board of Directors is not independent until one year after the end of such service or the employment relationship.
D. The term of any material service provider contract with the risk retention group shall not exceed five
(5)years. Any such contract, or its renewal, shall require the approval of the majority of the risk retention group's independent directors. The risk retention group's Board shall have the right to terminate any service provider, audit or actuarial contract at any time for cause after providing adequate notice as defined in the contract. The service provider contract is deemed material if the amount to be paid for the contract is greater than or equal to five percent (5%) of the risk retention group's annual gross written premium or two percent (2%) of its surplus, whichever is greater. For the purpose of this section, lawyer shall not include defense counsel retained by the risk retention group to defend claims, unless the amount of fees paid to such lawyers are material. No service provider contract violating the provisions prohibiting material relationships, as specified in subsection B of this section, shall be entered into unless the risk retention group has notified the Commissioner in writing of its intention to enter into such contract at least thirty
(30)days prior and the Commissioner has not disapproved it within such period. To the extent permissible under
state law, service providers of a reciprocal risk retention group shall contract with the risk retention group.
If the risk retention group is a reciprocal risk retention group, then the attorney-in-fact would be required to adhere to the same standards regarding independence of operation and governance as imposed on the Board's advisory committee created pursuant to this section.
E. The risk retention group's Board shall adopt a written policy in the plan of operation, as approved by the Board, that requires the Board to:
1. Assure that all owners and insureds of the risk retention group receive evidence of ownership interest;
2. Develop a set of governance standards applicable to the risk retention group;
3. Oversee the evaluation of the risk retention group's management including but not limited to the performance of the captive manager, managing general underwriter or other party or parties responsible for underwriting, determination of rates, collection of premium, adjusting or settling claims or the preparation of financial statements;
4. Review and approve the amount to be paid for all material service providers; and
5. Review and approve, at least annually:
a. the risk retention group's goals and objectives
relevant to the compensation of officers and service
providers,
b. the officers' and service providers' performance
considering those goals and objectives, and
c. the continued engagement of the officers and material
service providers.
F. 1. The risk retention group shall have an audit committee composed of at least three independent Board members, as specified in subsection C of this section. A nonindependent Board member may participate in the activities of the audit committee, if invited by the members, but shall not be a member of the committee.
2. The audit committee shall have a written charter that defines the purpose of the committee that includes but is not limited to:
a. assisting Board oversight of:
i. the integrity of the financial statements,
ii. the compliance with legal and regulatory
requirements, and
iii. the qualifications, independence and performance
of the independent auditor and actuary,
b. discussing the annual audited financial statements and
quarterly financial statements with management,
c.
discussing the annual audited financial statements
with its independent auditor and, if advisable,
discuss its quarterly financial statements with its
independent auditor,
d. discussing policies with respect to risk assessment
and risk management,
e. meeting separately and periodically, either directly
or through a designated representative of the
committee, with management and independent auditors,
f. reviewing with the independent auditor any audit
problems or difficulties and management's response,
g. setting clear hiring policies of the risk retention
group as to the hiring of employees or former
employees of the independent auditor,
h. requiring the external auditor to rotate the head
audit partner having primary responsibility for the
risk retention group's audit, as well as the audit
partner responsible for reviewing that audit so that
neither individual performs audit services for more
than five
(5)consecutive fiscal years, and
i. reporting regularly to the Board.
3. The domestic regulator may waive the requirement to establish an audit committee if the risk retention group is able to demonstrate to the domestic regulator that it is impracticable to do so and the risk retention group's Board is able to accomplish the purposes of an audit committee described in this subsection.
G. The Board shall adopt and disclose governance standards and provide the information to members and insureds upon request, which shall include but not be limited to:
1. A process by which the directors are elected by the owner and insureds;
2. Director qualification standards;
3. Director responsibilities;
4. Director access to management and, as necessary and appropriate, independent advisors;
5. Director compensation;
6. Director orientation and continuing education;
7. The policies and procedures that are followed for management succession; and
8. The policies and procedures that are followed for annual performance evaluation of the Board.
H. The Board shall adopt and disclose a code of business conduct and ethics for directors, officers and employees of the risk retention group and shall promptly disclose to the Board any waivers of the code for directors or executive officers, which shall include the following topics:
1. Conflicts of interest;
2. Matters covered under the corporate opportunities doctrine under the state of domicile;
3. Confidentiality;
4. Fair dealing;
5. Protection and proper use of risk retention group assets;
6. Compliance with all applicable laws, rules and regulations; and
7. Requiring the reporting of any illegal or unethical behavior which affects the operation of the risk retention group.
I. The captive manager, president or chief executive officer of the risk retention group shall promptly notify the domestic regulator in writing if either becomes aware of any material noncompliance with the governance standards specified in subsections G and H of this section. Added by Laws 2021, c. 314, § 3, eff. Nov. 1, 2021.