2013 -- S 0709

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LC01405

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STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2013

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A N A C T

RELATING TO INSURANCE

     Introduced By: Senator Frank Lombardo

     Date Introduced: March 13, 2013

     Referred To: Senate Commerce

It is enacted by the General Assembly as follows:

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     SECTION 1. Title 27 of the General Laws entitled "INSURANCE" is hereby amended

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by adding thereto the following chapter:

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     CHAPTER 77

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RISK MANAGEMENT AND OWN RISK AND SOLVENCY ASSESSMENT ACT

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     27-77-1. Purpose and Scope. -- The purpose of this chapter is to provide the

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requirements for maintaining a risk management framework, and completing an own risk and

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solvency assessment (ORSA) and provide guidance and instructions for filing an ORSA Summary

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Report with the insurance commissioner of this state.

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     The requirements of this chapter shall apply to all insurers domiciled in this state

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unless exempt pursuant to section 27-77-6.

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     The general assembly finds and declares that the ORSA Summary Report will contain

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confidential and sensitive information related to an insurer or insurance group's identification of

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risks material and relevant to the insurer or insurance group filing the report. This information

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will include proprietary and trade secret information that has the potential for harm and

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competitive disadvantage to the insurer or insurance group if the information is made public. It

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is the intent of this general assembly that the ORSA Summary Report shall be a confidential

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document filed with the commissioner, that the ORSA Summary Report will be shared only as

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stated herein and to assist the commissioner in the performance of his or her duties, and that in no

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event shall the ORSA Summary Report be subject to public disclosure.

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     27-77-2. Definitions. - (a) "Commissioner" means the director of the department of

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business regulation or his or her designee.

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     (b) "Insurance group" For the purpose of conducting an ORSA, the term "insurance

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group" means those insurers and affiliates included within an insurance holding company system

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as defined in chapter 27-35.

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     (c) "Insurer" The term "insurer" shall not include agencies, authorities or

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instrumentalities of the United States, its possessions and territories, the commonwealth of

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Puerto Rico, the District of Columbia, or a state or political subdivision of a state.

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     (d) "NAIC" means the National Association of Insurance Commissioners.

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     (e) "Own Risk and Solvency Assessment" or "ORSA" An "Own Risk and Solvency

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Assessment" or "ORSA" means a confidential internal assessment, appropriate to the nature,

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scale and complexity of an insurer or insurance group, conducted by that insurer or insurance

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group of the material and relevant risks associated with the insurer or insurance group's

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current business plan, and the sufficiency of capital resources to support those risks.

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     (f) "ORSA Guidance Manual" means the current version of the "Own Risk and

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Solvency Assessment Guidance Manual" developed and adopted by the NAIC and as amended

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from time to time. A change in the ORSA guidance manual shall be effective on January 1

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following the calendar year in which the changes have been adopted by the NAIC.

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     (g) "ORSA Summary Report" means a confidential high-level summary of an insurer or

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insurance group's ORSA.

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     27-77-3. Risk Management Framework. - An insurer shall maintain a risk

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management framework to assist the insurer with identifying, assessing, monitoring, managing

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and reporting on its material and relevant risks. This requirement may be satisfied if the

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insurance group of which the insurer is a member maintains a risk management framework

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applicable to the operations of the insurer.

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     27-77-4. ORSA Requirement. - Subject to section 27-77-6, an insurer, or the

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insurance group of which the insurer is a member, shall regularly conduct an ORSA

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consistent with a process comparable to the ORSA guidance manual. The ORSA shall be

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conducted no less than annually but also at any time when there are significant changes to the

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risk profile of the insurer or the insurance group of which the insurer is a member.

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     27-77-5. ORSA Summary Report. - (a) Upon the commissioner's request, and no more

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than once each year, an insurer shall submit to the commissioner an ORSA summary report or

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any combination of reports that together contain the information described in the ORSA

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guidance manual, applicable to the insurer and/or the insurance group of which it is a member.

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Notwithstanding any request from the commissioner, if the insurer is a member of an insurance

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group, the insurer shall submit the report(s) required by this subsection if the commissioner is

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the lead state commissioner of the insurance group as determined by the procedures within the

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financial analysis handbook adopted by the NAIC.

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     (b) The report(s) shall include a signature of the insurer or insurance group's chief risk

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officer or other executive having responsibility for the oversight of the insurer's enterprise risk

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management process attesting to the best of his/her belief and knowledge that the insurer applies

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the enterprise risk management process described in the ORSA summary report and that a copy of

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the report has been provided to the insurer's board of directors or the appropriate committee

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thereof.

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     (c) An insurer may comply with subsection (a) by providing the most recent and

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substantially similar report(s) provided by the insurer or another member of an insurance group

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of which the insurer is a member to the commissioner of another state or to a supervisor or

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regulator of a foreign jurisdiction, if that report provides information that is comparable to the

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information described in the ORSA guidance manual. Any such report in a language other than

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english must be accompanied by a translation of that report into the english language.

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     27-77-6. Exemption. - (a) An insurer shall be exempt from the requirements of this

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chapter, if:

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     (1) The insurer has annual direct written and unaffiliated assumed premium, including

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international direct and assumed premium but excluding premiums reinsured with the Federal

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Crop Insurance Corporation and Federal Flood Program, less than five hundred million dollars

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($500,000,000); and,

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     (2) The insurance group of which the insurer is a member has annual direct written and

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unaffiliated assumed premium, including international direct and assumed premium, but

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excluding premiums reinsured with the Federal Crop Insurance Corporation and Federal Flood

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Program, less than one billion dollars ($1,000,000,000).

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     (b) If an insurer qualifies for exemption pursuant to subdivision 27-77-6(a)(1), but

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the insurance group of which the insurer is a member does not qualify for exemption pursuant to

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subdivision 27-77-6(a)(2), then the ORSA summary report that may be required pursuant to

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section 27-77-5 shall include every insurer within the insurance group. This requirement may be

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satisfied by the submission of more than one ORSA summary report for any combination of

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insurers provided any combination of reports includes every insurer within the insurance group.

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     (c) If an insurer does not qualify for exemption pursuant to subdivision 27-77-

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6(a)(1), but the insurance group of which it is a member qualifies for exemption pursuant to

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subdivision 27-77-6(a)(2), then the only ORSA summary report that may be required

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pursuant to section 27-77-5 shall be the report applicable to that insurer.

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     (d) An insurer that does not qualify for exemption pursuant to subsection (a) may

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apply to the commissioner for a waiver from the requirements of this chapter based upon unique

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circumstances. In deciding whether to grant the insurer's request for waiver, the commissioner

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may consider the type and volume of business written, ownership and organizational structure,

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and any other factor the commissioner considers relevant to the insurer or insurance group of

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which the insurer is a member. If the insurer is part of an insurance group with insurers

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domiciled in more than one state, the commissioner shall coordinate with the lead state

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commissioner and with the other domiciliary commissioners in considering whether to grant the

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insurer's request for a waiver.

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     (e) Notwithstanding the exemptions stated in this section:

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     (1) The commissioner may require that an insurer maintain a risk management

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framework, conduct an ORSA and file an ORSA summary report based on unique circumstances

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including, but not limited to, the type and volume of business written, ownership and

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organizational structure, federal agency requests, and international supervisor requests; and

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     (2) The commissioner may require that an insurer maintain a risk management

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framework, conduct an ORSA and file an ORSA summary report if the insurer has risk-based

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capital for company action level event as defined and governed by chapter 27-4.6, meets one or

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more of the standards of an insurer deemed to be in hazardous financial condition as defined in

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chapter 27-14.2, or otherwise exhibits qualities of a troubled insurer as determined by the

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commissioner.

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     (f) If an insurer that qualifies for an exemption pursuant to subsection (a)

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subsequently no longer qualifies for that exemption due to changes in premium as reflected in

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the insurer's most recent annual statement or in the most recent annual statements of the insurers

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within the insurance group of which the insurer is a member, the insurer shall have one year

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following the year the threshold is exceeded to comply with the requirements of this chapter.

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     27-77-7. Contents of ORSA Summary Report. - (a) The ORSA summary report shall

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be prepared consistent with the ORSA guidance manual, subject to the requirements of

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subsection (b) of this section. Documentation and supporting information shall be maintained

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and made available upon examination or upon request of the commissioner.

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     (b) The review of the ORSA summary report, and any additional requests for

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information, shall be made using similar procedures currently used in the analysis and

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examination of multi- state or global insurers and insurance groups.

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     27-77-8. Confidentiality. - (a) Documents, materials or other information, including

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the ORSA summary report, in the possession of or control of the department of business

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regulation that are obtained by, created by or disclosed to the commissioner or any other person

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under this chapter, is recognized by this state as being proprietary and to contain trade secrets.

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All such documents, materials or other information shall be confidential by law and privileged,

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shall not be subject to chapter 38-2 (Access to Public Records), shall not be subject to

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subpoena, and shall not be subject to discovery or admissible in evidence in any private civil

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action. However, the commissioner is authorized to use the documents, materials or other

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information in the furtherance of any regulatory or legal action brought as a part of the

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commissioner's official duties. The commissioner shall not otherwise make the documents,

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materials or other information public without the prior written consent of the insurer.

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     (b) Neither the commissioner nor any person who received documents, materials or other

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ORSA-related information, through examination or otherwise, while acting under the authority

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of the commissioner or with whom such documents, materials or other information are shared

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pursuant to this chapter shall be permitted or required to testify in any private civil action

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concerning any confidential documents, materials, or information subject to subsection (a).

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     (c) In order to assist in the performance of the commissioner's regulatory duties, the

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commissioner:

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     (1) May, upon request, share documents, materials or other ORSA-related information,

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including the confidential and privileged documents, materials or information subject to

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subsection (a), including proprietary and trade secret documents and materials with other state,

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federal and international financial regulatory agencies, including members of any supervisory

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college as defined in chapter 27-35, with the NAIC and with any third-party consultants

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designated by the commissioner, provided that the recipient agrees in writing to maintain the

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confidentiality and privileged status of the ORSA-related documents, materials or other

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information and has verified in writing the legal authority to maintain confidentiality; and

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     (2) May receive documents, materials or other ORSA-related information, including

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otherwise confidential and privileged documents, materials or information, including proprietary

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and trade-secret information or documents, from regulatory officials of other foreign or

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domestic jurisdictions, including members of any supervisory college as defined in chapter 27-

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35, and from the NAIC, and shall maintain as confidential or privileged any documents,

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materials or information received with notice or the understanding that it is confidential or

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privileged under the laws of the jurisdiction that is the source of the document, material or

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information.

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     (3) Shall enter into a written agreement with the NAIC or a third-party consultant

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governing sharing and use of information provided pursuant to this chapter, consistent with this

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subsection that shall:

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     (i) Specify procedures and protocols regarding the confidentiality and security of

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information shared with the NAIC or a third-party consultant pursuant to this chapter,

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including procedures and protocols for sharing by the NAIC with other state regulators from

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states in which the insurance group has domiciled insurers. The agreement shall provide that the

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recipient agrees in writing to maintain the confidentiality and privileged status of the ORSA-

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related documents, materials or other information and has verified in writing the legal authority

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to maintain confidentiality;

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     (ii) Specify that ownership of information shared with the NAIC or a third-party

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consultant pursuant to this chapter remains with the commissioner and the NAIC's or a third-

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party consultant's use of the information is subject to the direction of the commissioner;

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     (iii) Prohibit the NAIC or third-party consultant from storing the information shared

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pursuant to this chapter in a permanent database after the underlying analysis is completed;

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     (iv) Require prompt notice to be given to an insurer whose confidential information in

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the possession of the NAIC or a third-party consultant pursuant to this chapter is subject to a

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request or subpoena to the NAIC or a third-party consultant for disclosure or production;

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     (v) Require the NAIC or a third-party consultant to consent to intervention by an insurer

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in any judicial or administrative action in which the NAIC or a third-party consultant may be

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required to disclose confidential information about the insurer shared with the NAIC or a third-

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party consultant pursuant to this chapter; and

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     (vi) In the case of an agreement involving a third-party consultant, provide for the

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insurer's written consent.

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     (d) The sharing of information and documents by the commissioner pursuant to this

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chapter shall not constitute a delegation of regulatory authority or rulemaking, and the

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commissioner is solely responsible for the administration, execution and enforcement of the

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provisions of this chapter.

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     (e) No waiver of any applicable privilege or claim of confidentiality in the documents,

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proprietary and trade-secret materials or other ORSA-related information shall occur as a result

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of disclosure of such ORSA-related information or documents to the commissioner under this

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section or as a result of sharing as authorized in this chapter.

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     (f) Documents, materials or other information in the possession or control of the

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NAIC or third-party consultants pursuant to this chapter shall be confidential by law and

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privileged, shall not be subject to chapter 38-2, shall not be subject to subpoena, and shall not be

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subject to discovery or admissible in evidence in any private civil action.

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     27-77-9. Sanctions. - Any insurer failing, without just cause, to timely file the ORSA

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summary report as required in this chapter shall be required, after notice and hearing, to pay a

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penalty of one thousand dollars ($1,000) for each day's delay, to be recovered by the

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commissioner and the penalty so recovered shall be paid into the general fund. The maximum

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penalty under this section is three hundred sixty-five thousand dollars ($365,000). The

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commissioner may reduce the penalty if the insurer demonstrates to the commissioner that the

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imposition of the penalty would constitute a financial hardship to the insurer.

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     27-77-10. Severability Clause. - If any provision of this chapter, or the application

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thereof to any person or circumstance, is held invalid, such determination shall not affect the

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provisions or applications of this chapter which can be given effect without the invalid

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provision or application, and to that end the provisions of this chapter are severable.

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     SECTION 2. This act shall take effect on January 1, 2015.

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LC01405

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EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N A C T

RELATING TO INSURANCE

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     This act would enact the National Association of Insurance Commissioners Risk

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Management and Own Risk and Solvency Assessment Model Act, and would, among other

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things, require insurers to file reports, no more than once a year, to assist in evaluation of the

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solvency of the insurer.

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     This act would take effect on January 1, 2015.

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LC01405

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