33-11-103. Chartering -- licensing -- plan of operation. (1) A risk retention group seeking to be chartered in this state must be chartered and licensed to write only casualty insurance pursuant to the insurance laws of this state and, except as provided in this part, shall comply with all of the laws, rules, regulations, and requirements applicable to the insurers chartered and authorized in this state, including 33-11-104, to the extent that the requirements are not a limitation on laws, rules, regulations, or requirements of this state. Before offering insurance in any state, the risk retention group shall also submit for approval to the commissioner a plan of operation or a feasibility study and revisions of the plan or study if the group intends to offer any additional lines of liability insurance.
(2) At the time of filing its application for charter, the risk retention group shall provide to the commissioner in summary form the following information:
(a) the identity of the initial members of the risk retention group;
(b) the identity of those individuals who organized the risk retention group or who will provide administrative services or otherwise influence or control the activities of the risk retention group;
(c) the amount and nature of initial capitalization;
(d) the coverages to be afforded; and
(e) the states in which the risk retention group intends to operate.
(3) Upon receipt of the information required under subsection (2), the commissioner shall forward the information to the national association of insurance commissioners. Providing this information to the national association of insurance commissioners does not satisfy the requirements of 33-11-104 or any other section of this chapter.
(4) All risk retention groups chartered in this state shall file with the department and the national association of insurance commissioners an annual statement in a form prescribed by the national association of insurance commissioners, including electronically if required by the commissioner, and completed in accordance with instructions provided by the national association of insurance commissioners and the national association of insurance commissioners' accounting practices and procedures manual.
(5) All risk retention groups must be in compliance with the governance standards contained within this section within 1 year of April 30, 2015. New risk retention groups must be in compliance with the standards at the time of licensure.
(6) (a) The board of directors of the risk retention group must consist of a majority of independent directors. If the risk retention group is reciprocal, the attorney-in-fact shall adhere to the same standards regarding independence of operation and governance as are imposed on the risk retention group's board of directors under these standards. The board of directors shall affirmatively determine that a director has no material relationship with the risk retention group for that director to be considered independent.
(b) Each risk retention group shall disclose the determinations of independence to the commissioner annually.
(c) (i) For the purpose of determining independence under this subsection (6), any person that is a direct or indirect owner of or a subscriber in the risk retention group or is an officer, director, or employee of the owner and insured, unless meeting the material relationship provisions under subsection (6)(c)(ii), is considered to be independent.
(ii) A person described in subsection (6)(c)(i) is not considered independent and has a material relationship of its members, as described in 15 U.S.C. 3901(a)(4)(E)(ii), if the person, a member of the person's immediate family, or any business with which the person is affiliated:
(A) has received in any 12-month period from the risk retention group, including a consultant or a service provider to the risk retention group, compensation or payment of any item of value that accounts for either 5% of the risk retention group's gross written premium for that 12-month period or 2% of the risk retention group's surplus, whichever is greater;
(B) has a relationship of employment or affiliation in a professional capacity or has had a relationship of employment or affiliation within 1 year with a present or former internal or external auditor of the risk retention group; or
(C) has a relationship or has had a relationship within 1 year with a related entity by which a director or an immediate family member of the director is employed as an executive officer. This condition includes any of the risk retention group's present executives serving on the related company's board of directors.
(7) (a) A material service provider contract with a risk retention group or its renewal:
(i) may not exceed 5 years;
(ii) requires the approval of a majority of the risk retention group's independent directors; and
(iii) is considered material if the amount to be paid for the contract is greater than or equal to 5% of the risk retention group's annual gross written premium or 2% of the risk retention group's surplus, whichever is greater.
(b) The entire board of directors may terminate any service provider contract at any time for cause after providing adequate notice as defined in the contract.
(c) The board may not enter a service provider contract with a person who has a material relationship with the risk retention group as provided in subsection (6)(c)(ii) unless the board has notified the commissioner at least 30 days prior to entering the contract and the commissioner has not disapproved the contract.
(8) The risk retention group's board of directors shall adopt in the plan of operation a written policy that requires the board to:
(a) ensure that all owners or insureds of the risk retention group receive evidence of ownership interest;
(b) develop a set of governance standards applicable to the risk retention group;
(c) 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 any other party that is responsible for underwriting, determination of rates, collection of premium, adjusting or settling claims, or the preparation of financial statements;
(d) review and approve the amount to be paid for all material service providers; and
(e) review and approve at least annually:
(i) the risk retention group's goals and objectives relevant to the compensation of officers and service providers;
(ii) the officers' and service providers' performance in light of those goals and objectives; and
(iii) the continued engagement of the officers and material service providers.
(9) (a) Except as provided in subsection (9)(b), the risk retention group shall name an audit committee composed of at least three independent board members as defined in subsection (6)(c)(i). A nonindependent board member may participate in the activities of the audit committee but may not be a member of the audit committee.
(b) The entire board of directors shall serve as the audit committee if the board chooses not to designate a separate audit committee.
(10) An audit committee shall approve a written charter that defines the committee's purpose, which at a minimum must be to:
(a) assist board oversight of:
(i) the integrity of the financial statements;
(ii) the board's compliance with legal and regulatory requirements; and
(iii) the qualifications, independence, and performance of the independent auditor and actuary;
(b) discuss the annual audited financial statements and quarterly financial statements with management;
(c) discuss the annual audited financial statement with its independent auditor and, if advisable, discuss its quarterly financial statements with its independent auditor;
(d) discuss policies with respect to risk assessment and risk management;
(e) meet separately and periodically, either directly or through a designated representative of the committee, with management and independent auditors;
(f) review with the independent auditor any audit problems or difficulties and management's response;
(g) set clear hiring policies of the risk retention group as to the hiring of employees or former employees of the independent auditor;
(h) require the external auditor to rotate the lead or coordinating audit partner having primary responsibility for the risk retention group's audit as well as the audit partner responsible for reviewing the audit so that neither individual performs audit services for more than 5 consecutive fiscal years; and
(i) report regularly to the board of directors.
(11) (a) The board of directors shall adopt and disclose standards that make information available through electronic or other means and shall provide that information upon request.
(b) For the purposes of this subsection (11), the information must include:
(i) the process by which the directors are elected by the owner or the insureds;
(ii) qualification standards, responsibilities, and compensation for directors;
(iii) director access to management and, as necessary and appropriate, to independent advisors;
(iv) director orientation and continuing education;
(v) management succession policies and procedures; and
(vi) annual board performance evaluation policies and procedures.
(12) (a) The board of directors shall adopt and disclose a code of business conduct and ethics for directors, officers, and employees. Any waivers of this code as the code applies to directors and officers must be voted on by a majority of the independent directors.
(b) The code must address:
(i) conflicts of interest, including director's conflicting interest transactions as defined in 35-14-860;
(ii) confidentiality;
(iii) fair dealing;
(iv) protection and proper use of risk retention group assets;
(v) compliance with all applicable laws, rules, and regulations; and
(vi) requirements for the reporting of any illegal or unethical behavior that affects the operation of the risk retention group.
(13) The captive manager, president, or chief executive officer of the risk retention group shall promptly notify the commissioners in writing as soon as that person is aware of any material noncompliance with any standard provided for in this section.
History: En. Sec. 3, Ch. 249, L. 1987; amd. Sec. 63, Ch. 596, L. 1993; amd. Sec. 36, Ch. 370, L. 2015; amd. Sec. 236, Ch. 271, L. 2019.