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The Vermont Statutes Online
Title
08
:
Banking and Insurance
Chapter
142
:
RISK RETENTION GROUPS AND PURCHASING GROUPS
§
6052. Risk retention groups chartered in this State
(a) Pursuant to
the provisions of chapter 141 of this title, a risk retention group shall be
chartered and licensed to write only liability insurance pursuant to this
chapter, must comply with all of the laws, rules, regulations, and requirements
applicable to such insurers chartered and licensed in this State under chapter
141 of this title, and with subdivisions 6053(4), (5), (7), and (8) of this
title. A risk retention group chartered in this State may provide coverage for
payment of punitive damages, the multiplied portion of multiple damages, or
other penalties in the nature of compensatory damages, and any such coverage
shall be enforceable against such risk retention group in accordance with its
terms.
(b) Before it
may offer insurance in any state, each risk retention group shall also submit
for approval to the Commissioner of this State a plan of operation and
feasibility study which includes a description of the coverages, deductibles,
coverage limits, rates, and rating classification systems for each line of
insurance the group intends to offer, together with such additional information
as the Commissioner may reasonably require. In considering and approving the
risk retention group's plan of operation and any subsequent amendments thereto,
the Commissioner may limit the net amount of risk retained by a risk retention
group. The risk retention group shall submit for approval by the Commissioner
an appropriate revision in the event of any subsequent material change in any
item of the plan of operation or feasibility study, including any material
change in the information called for in subsection (c) of this section, but
excluding the identity of policyholders and any changes in rates or rating
classification systems. The group shall not offer any additional kinds of
liability insurance, in this State or in any other state, until a revision of
such plan or study is approved by the Commissioner. The risk retention group
shall inform the Commissioner of any material changes in rates or rating
classification systems, within 30 days of the adoption of such change.
(c)(1) 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 policyholders or members of the group or if the identity is not
known or cannot be determined, a description of who is eligible to be a
policyholder or a member;
(B) the identity
of the persons that organized the group;
(C) the identity
of any persons that will act as a managing general agent or reinsurance
intermediary for, provide other significant administrative services to, or
otherwise influence or control the activities of, the group;
(D) summary descriptions
of the services, described in subdivision (C) of this subsection, and of any
contracts under which the services are to be performed, including the method of
compensation therefor;
(E) the amount
and nature of initial capitalization;
(F) plans for
the payment of dividends or other distributions of members' capital and
surplus; and
(G) the states
in which the group intends to file.
(2) The
applicant may bind separately any portions of the application or any amendment
thereto that contain proprietary information or documents, and request
confidential treatment of such portions. As used in this section,
"proprietary information or documents" means certain information or
documents furnished by or pertaining to any of the persons specified above that
would customarily be treated as confidential or sensitive and the disclosure of
which could result in harm or prejudice to the person to whom the information
or documents pertain or unfair advantage to another person. Such information
includes, trade secrets, historical or projected loss data, or case reserves of
members or policyholders, actuarial analyses which include such data or
reserves, historical or projected financial data not otherwise publicly
available, and similar information or documents. The Commissioner shall
determine which portions specified by the applicant fall within the definition
of proprietary information or documents and treat such portions as
confidential. Provided, however, that nothing herein shall excuse the applicant
from making any required disclosure under the RRA 1986, this chapter or chapter
141 of this title, or prohibit the Commissioner from disclosing any proprietary
information or documents in the furtherance of any legal or regulatory
proceeding. Before using proprietary information or documents in a legal or
regulatory proceeding that does not involve the applicant or any person named
in the application or any amendment thereto, the Commissioner shall first seek
to obtain the same information from nonconfidential sources. If unavailable
from nonconfidential sources, the Commissioner shall seek to protect the
confidential information or documents from unnecessary disclosure. Upon
licensing, the Commissioner shall forward to the National Association of
Insurance Commissioners all information required under the RRA 1986 to be
submitted to each state where the risk retention group proposes to operate and
all other information not deemed confidential under this section. Providing
notification to the National Association of Insurance Commissioners is in
addition to and shall not be sufficient to satisfy the requirements of section
6053 or any other sections of this chapter. In addition, the Commissioner may
provide access to confidential application information with respect to risk
retention groups to representatives of the National Association of Insurance
Commissioners to inspect (but not copy) such information in connection with
accreditation examinations, so long as the National Association of Insurance
Commissioners agrees in writing to maintain the confidentiality of such
information.
(d) The
provisions of subsection 6008(c) of this title shall apply to risk retention
groups chartered in this State, except that such provisions shall not apply to
final examination reports relating to risk retention groups and except that the
Commissioner may, in the Commissioner's discretion, grant access to any other
examination information covered by subsection 6008(c) of this title to
representatives of the National Association of Insurance Commissioners to
inspect (but not copy) such information in connection with accreditation
examinations, so long as the National Association of Insurance Commissioners
agrees in writing to maintain the confidentiality of such information.
(e) The
provisions of subchapter 13 of chapter 101 of this title shall apply to risk
retention groups chartered in this State. However, no existing rule,
regulation, or order promulgated under section 3688 of this title shall apply
to a risk retention group chartered in this State unless the rule, regulation,
or order or a provision thereof is specific to risk retention groups. The
Commissioner shall establish procedures to implement the provisions of
subchapter 13 of chapter 101 of this title as applied to risk retention groups
chartered in this State by rule, regulation, or order.
(f) The
provisions of chapter 159 of this title (risk based capital for insurers) shall
apply to risk retention groups chartered in this State, except that the
Commissioner may elect not to take regulatory action as otherwise required by
sections 8303-8306 of chapter 159 of this title, provided at least one of the
following conditions exist:
(1) The
Commissioner determines that the risk retention group's members or sponsoring
organization, or both, are sufficiently capitalized to support the operations
of the risk retention group. As required by the Commissioner, the members or
sponsoring organization, or both, shall provide evidence of:
(A) an
investment grade credit rating from a nationally recognized statistical rating
organization or rating of A- or better by the A. M. Best Company;
(B) an excess of
assets over liabilities of at least $100 million; or
(C) an excess of
assets over liabilities of at least 10 times the risk retention group's largest
net retained per occurrence limit.
(2) Each
policyholder qualifies as an industrial insured under the law of his or her
home state, or under Vermont law, whichever the Commissioner determines to be
more stringent.
(3) The risk
retention group's certificate of authority was issued prior to January 1, 2011
and, based on a minimum of five years of solvent operation, is specifically
exempted from the requirements for mandatory action in writing by the
Commissioner.
(g) This
subsection establishes governance standards for a risk retention group.
(1) As used in
this subsection:
(A) "Board
of directors" or "board" means the governing body of a risk
retention group elected by risk retention group members to establish policy,
elect or appoint officers and committees, and make other governing decisions.
(B)
"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.
(C) "Independent
director" means a director who does not have a material relationship with
the risk retention group. 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, unless some other position of such
officer, director, or employee constitutes a "material relationship"
- as contemplated under subdivision 3901(a)(4)(E)(ii) of the federal Liability
Risk Retention Act, is considered to be "independent." A director has
a material relationship with a risk retention group if he or she, or a member
of his or her immediate family:
(i) In any
12-month period, receives from the risk retention group, or from a consultant
or service provider to the risk retention group, compensation or other item of
value in an amount equal to or greater than five percent of the risk retention
group's gross written premium or two percent of the risk retention group's
surplus, as measured at the end of any fiscal quarter falling in such 12-month
period, whichever is greater. This provision also applies to compensation or
items of value received by any business with which the director is affiliated.
Such material relationship shall continue for one year after the item of value
is received or the compensation ceases or falls below the threshold established
in this subdivision, as applicable.
(ii) Has a
relationship with an auditor as follows: Is affiliated with or employed in a
professional capacity by a current or former internal or external auditor of
the risk retention group. Such material relationship shall continue for one
year after the affiliation or employment ends.
(iii) Has a
relationship with a related entity as follows: Is employed as an executive
officer of another company whose board of directors includes executive officers
of the risk retention group, unless a majority of the membership of such other
company's board of directors is the same as the membership of the board of
directors of the risk retention group. Such material relationship shall
continue until the employment or service ends.
(D)
"Material service provider" includes a captive manager, auditor,
accountant, actuary, investment advisor, attorney, managing general
underwriter, or other person responsible for underwriting, determination of
rates, premium collection, claims adjustment or settlement, or preparation of
financial statements, whose aggregate annual contract fees are equal to or
greater than five percent of the risk retention group's annual gross written premium
or two percent of its surplus, whichever is greater. It does not mean defense
counsel retained by a risk retention group, unless his or her annual fees are
equal to or greater than five percent of a risk retention group's annual gross
premium or two percent of its surplus, whichever is greater.
(2) The board of
directors shall determine whether a director is independent; review such
determinations annually; and maintain a record of the determinations, which
shall be provided to the Commissioner promptly, upon request. The board shall
have a majority of independent directors. If the risk retention group is
reciprocal, then the attorney-in-fact is required to adhere to the same
standards regarding independence as imposed on the risk retention group's board
of directors.
(3) The term of
any material service provider contract entered into with a risk retention group
shall not exceed five years. The contract, or its renewal, requires approval of
a majority of the risk retention group's independent directors. The board of
directors has the right to terminate a contract at any time for cause after
providing adequate notice, as defined in the terms of the contract.
(4) A risk
retention group shall not enter into a material service provider contract
without the prior written approval of the Commissioner.
(5) A risk
retention group's plan of operation shall include written policies approved by
its board of directors requiring the board to:
(A) provide
evidence of ownership interest to each risk retention group member;
(B) develop
governance standards applicable to the risk retention group;
(C) oversee the
evaluation of the risk retention group's management, including the performance
of its captive manager, managing general underwriter, or other person or
persons responsible for underwriting, rate determination, premium collection,
claims adjustment and settlement, or preparation of financial statements;
(D) review and
approve the amount to be paid under a material service provider contract; and
(E) at least
annually, review and approve:
(i) the risk
retention group's goals and objectives relevant to the compensation of officers
and service providers;
(ii) the
performance of officers and service providers as measured against the risk
retention group's goals and objectives;
(iii) the
continued engagement of officers and material service providers.
(6) A risk
retention group shall have an audit committee composed of at least three
independent board members. A nonindependent board member may participate in the
committee's activities, if invited to do so by the audit committee, but he or
she shall not serve as a committee member. The Commissioner may waive the
requirement of an audit committee if the risk retention group demonstrates to
the Commissioner's satisfaction that having such committee is impracticable and
the board of directors is able to perform sufficiently the committee's
responsibilities. The audit committee shall have a written charter defining its
responsibilities, which shall include:
(A) assisting
board oversight of the integrity of financial statements, compliance with legal
and regulatory requirements, and qualifications, independence, and performance
of the independent auditor or actuary;
(B) reviewing
annual and quarterly audited financial statements with management;
(C) reviewing
annual audited financial statements with its independent auditor and, if it
deems advisable, the risk retention group's quarterly financial statements as
well;
(D) reviewing
risk assessment and risk management policies;
(E) meeting with
management, either directly or through a designated representative of the
committee;
(F) meeting with
independent auditors, either directly or through a designated representative of
the committee;
(G) reviewing
with the independent auditor any audit problems and management's response;
(H) establishing
clear hiring policies applicable to the hiring of employees or former employees
of the independent auditor by the risk retention group;
(I) requiring
the independent auditor to rotate the lead 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 the risk retention group for more than five
consecutive fiscal years; and
(J) reporting
regularly to the board of directors.
(7) The board of
directors shall adopt governance standards, which shall be available to risk
retention group members through electronic or other means, and provided to risk
retention group members, upon request. The governance standards shall include:
(A) a process by
which risk retention group members elect directors;
(B) director
qualifications, responsibilities, and compensation;
(C) director
orientation and continuing education requirements;
(D) a process
allowing the board access to management and, as necessary and appropriate,
independent advisors;
(E) policies and
procedures for management succession; and
(F) policies and
procedures providing for an annual performance evaluation of the board.
(8) The board of
directors shall adopt a code of business conduct and ethics applicable to
directors, officers, and employees of the risk retention group and criteria for
waivers of code provisions, which shall be available to risk retention group
members through electronic or other means, and provided to risk retention group
members, upon request. Provisions of the code shall address:
(A) conflicts of
interest;
(B) matters
covered under the Vermont corporate opportunities doctrine;
(C)
confidentiality;
(D) fair
dealing;
(E) protection
and proper use of risk retention group assets;
(F) standards
for complying with applicable laws, rules, and regulations; and
(G) mandatory
reporting of illegal or unethical behavior affecting operation of the risk
retention group.
(9) The
president or chief executive officer of a risk retention group shall promptly
notify the Commissioner in writing of any known material noncompliance with the
governance standards established in this subsection. (Added 1991, No. 249 (Adj.
Sess.), § 23, eff. Dec. 31, 1992; amended 1993, No. 235 (Adj. Sess.), § 9i,
eff. June 21, 1994; 1997, No. 49, § 17, eff. June 26, 1997; 1999, No. 38, § 20,
eff. May 20, 1999; 2009, No. 42, §§ 29, 30, eff. May 27, 2009; 2011, No. 21, §
25; 2011, No. 78 (Adj. Sess.), § 41, eff. April 2, 2012; 2013, No. 103 (Adj.
Sess.), § 9, eff. April 14, 2014; 2015, No. 20, § 9, eff. May 7, 2015.)
