Chapter 310
2008 -- S 2068
AS AMENDED
Enacted 07/08/08
A N A C T
RELATING
TO INSURANCE
Introduced
By: Senator David E. Bates
Date
Introduced: January 15, 2008
It is enacted by the General Assembly as
follows:
SECTION 1. Section
27-1-2.1 of the General Laws in Chapter 27-1 entitled "Domestic
Insurance Companies" is hereby amended to
read as follows:
27-1-2.1.
Corporate governance standards. [Effective July 1, 2008.] -- (a) The
importance of good corporate governance is crucial
in promoting integrity in an insurance
company's business practices and in maintaining
public confidence and policyholder trust. The
size and ownership structure of a company often
determines the corporate governance standards
employed by the company. All Rhode Island
domestic insurers, regardless of their size or
ownership structure, shall establish the
following minimum corporate governance standards:
(1) The board of
directors must be comprised of a minimum of five (5) and a maximum
of twenty-one (21) members.
(2) The board
must meet at least two (2) times per year, however, four (4) times per year
is encouraged.
(3) The board
must establish a written attendance policy.
(4) The board
shall have authority to meet in executive session.
(5) There must be
an audit committee established by and amongst the board of directors
for the purpose of overseeing the accounting and
financial reporting processes of the insurer and
audits of the financial statement of the insurer.
If no such committee exists, the entire board of
directors shall act as the audit committee.
(6) The board
must review the minutes of the audit committee.
(7) The audit
committee must meet at least two (2) times per year.
(8) There must be
a written audit committee charter.
(9) At least one
member of the audit committee must have knowledge of statutory
accounting principles or generally accepted
accounting principles.
(10) The internal
audit function should have a direct reporting relationship to the audit
committee for critical matters such as the audit
plan, resources and budgets.
(11) The audit
committee must approve the selection of the independent auditor that
performs any audit required by the Rhode Island
regulation governing annual audited financial
reports.
(12) The audit
committee shall require the independent accountant that performs any
audit required by Rhode Island regulation
governing annual audited financial reports, to timely
report to the audit committee in accordance with
the requirements of Statement of Auditing
Standards No. 61, communications with audit
committee, or its replacement, including:
(i) All
significant accounting policies and material permitted practices;
(ii) All material
alternative treatments of financial information within statutory
accounting principles that have been discussed
with management officials of the insurer,
ramifications of the use of the alternative
disclosures and treatments, and the treatment preferred
by the accountant; and
(iii) Other
material written communications between the accountant and the management
of the insurer, such as any management letter or
schedule of unadjusted differences.
(13) There must
be a written code of ethics covering directors and officers that includes
the insurer's conflict of interest policy.
(14) There should
be a written policy encouraging employees to come forward with
observations of improprieties or other
malfeasance.
(15) On or after
the effective date of this act no domestic insurer or any affiliate member
of its holding company system (as defined in
section 27-35-1 et seq.) may extend or maintain
credit, arrange for the extension of credit, or
renew an extension of credit in the form of a
personal loan to or for any director or officer
of a domestic insurer. The terms and purpose of any
such existing extensions of credit made to any
director or officer of a domestic insurer must be
disclosed to the director. For purposes of this
subsection, benefits that are offered to directors or
officers as policyholders of a domestic insurer,
or benefits that are offered to the general public in
the insurer's normal course of business, shall
not be considered a violation of this subsection.
(b) In addition
to the standards enumerated in subsection (a) of this section, the
following corporate governance standards must be
employed by all Rhode Island domestic
mutual insurance companies and all domestic
insurance companies writing more than one
hundred million dollars ($100,000,000) in
premium, in any jurisdiction, on a direct and/or
assumed basis, as determined at the end of the
previous calendar year:
(1) The board
must have an independent majority of members.
(2) The audit
committee must have an independent majority of members.
(3) The audit
committee must approve all related party transactions, which include,
transaction between the company and its
affiliates and those between the company and its officers
and directors. The company may establish
materiality thresholds, however, they must be clearly
stated in its audit committee charter as
required by subdivision (a)(8), but in no event shall the
materiality thresholds exceed those established in
chapter 35 of title 27.
(c) For purposes
of this section, an independent board or audit committee member is
defined as an individual: (1) who is not being
compensated by the domestic insurer or any
company within its holding company system
("organization"), other than any reasonable
compensation and benefits for services as a
director, and has not been compensated within the
past twelve (12) months including full-time and
part-time compensation as an employee or an
independent contractor, except for reasonable
compensation as a director; (2) whose own
compensation is not determined by individuals
who are compensated by the organization, except
for reasonable compensation paid to the
director; (3) who does not receive material financial
benefits; (i.e. service contracts, grants or
other payments) from the organization; or (4) who is not
related to (as a spouse, sibling, parent, or
child) or the domestic partner of an individual
compensated by or who receives material
financial benefits from the organization. Policyholders
of a domestic insurer may be considered
independent providing they meet the requirements as
defined in this subsection.
(d) Any Rhode
Island domestic insurer that does not currently employ one or more of the
standards enumerated in subsections (a) and (b)
of this section, must submit a plan of corrective
action to the director for his or her approval.
The director, at his or her discretion, may waive any
of the requirements in this section for a period
not exceeding thirty-six (36) months. The
director's refusal to approve a plan of
corrective action after reviewing such plan of corrective
action for a period of sixty (60) days shall,
constitute a final order for purposes of the Rhode
Island administrative procedures act allowing
the party to appeal to the superior court.
(e) Nothing
contained in the company's by-laws shall conflict with the corporate
governance standards set forth in this act. Any
amendments to a domestic insurance company's
by-laws shall be submitted in writing to the
department.
(f) A domestic
insurer that is a member of an insurance holding company system as
defined in chapter 35 of title 27, is exempt
from this section if it can demonstrate that it is ,or is
controlled by an entity that either is required
to be compliant with, or voluntarily is compliant
with, all of the following provisions of the
Sarbanes-Oxley Act of 2002; (i) the preapproval
requirements of section 201 (section 10A(i) of the
Securities Exchange Act of 1934); (ii) the audit
committee independence requirements of section
301 (section 10A(m)(3) of the Securities
Exchange Act of 1934); and (iii) the internal
control over financial reporting requirements of
section 404 (Item 308 of SEC regulation S-K) --
("SOX Compliant Entity"). If the department
makes a determination, as a result of its
statutory examination or financial analysis, that the
domestic insurer is not controlled by a SOX
Compliant entity or that the insurer's interests and
affairs are not adequately considered and
evaluated by the SOX Compliant Entity, the domestic
insurer must take steps to comply with this act.
(g) A Rhode
Island domestic insurer that is a wholly-owned subsidiary of another Rhode
Island domestic insurer that is compliant with
the provisions of subsection A, and if applicable
the requirements of subsection B, shall be
exempt from compliance with any other requirements
of this act.
(h) The
requirements of this section, 27-1-2.1, shall not apply to entities regulated
pursuant to chapters 19, 20, 20.1, 20.2, 20.3
and 41 of title 27 and shall not supercede or replace
any specific statutory corporate governance
standards otherwise applicable to domestic insurance
companies.
SECTION 2.
Sections 27-4-6.1 and 27-4-6.2 of the General Laws in Chapter 27-4
entitled "Life Insurance Policies and
Reserves" are hereby amended to read as follows:
27-4-6.1.
Right to examine and return policy. -- Every individual life insurance
policy
delivered or issued for delivery in this state
after July 1, 1978, and every individual annuity
contract delivered in this state after January
1, 1995, shall contain a provision, or in a separate
rider attached when delivered, stating in
substance that the person to whom the policy or contract
is issued shall be permitted to return the
policy or contract within a minimum of ten (10) days of
its delivery to that person and to have a refund
of the premium paid, if after examination of the
policy or contract the purchaser is not
satisfied with it for any reason. Every individual life
insurance policy and every individual annuity
contract delivered in this state after January 1,
20072008, shall contain a provision, or in a separate rider
attached when delivered, stating in
substance that the person to whom the policy or
contract is issued shall be permitted to return the
policy or contract within a minimum of twenty
(20) days of its delivery to that person and to have
a refund of the premium paid, if after
examination of the policy or contract the purchaser is not
satisfied with it for any reason. The provision
shall be set forth in the policy or contract under an
appropriate caption and, if not printed on the
face page of the policy or contract, adequate notice
of the provision shall be printed or stamped
conspicuously on the face page. The policy or
contract may be returned to the insurer at its
home or branch office or to the insurance producer
through whom it was applied for, and then shall
be void as from the beginning and as if the policy
or contract had not been issued.
27-4-6.2.
Individual life insurance policy standard provisions. -- (a) All
individual life
insurance policies, except as otherwise stated
herein, delivered or issued for delivery in this state
on or after January 1, 20072008
shall contain in substance the following provisions, or provisions
which the director deems to be more favorable to
policyholders.
(1) Grace period.
- A provision that, after payment of the first premium, the policyholder
is entitled to a grace period of thirty-one (31)
days or of one month following any subsequent
premium due date within which to make payment of
the premium then due, during which grace
period the policy shall continue in full force,
and the policy shall further provide that if the death
of the insured occurs within the grace period
provided in the policy, the insurer may deduct from
the policy proceeds the portion of any unpaid
premium applicable to the period ending with the
last day of the policy month in which such death
occurred, and if the death of the insured occurs
during a period for which the premium has been
paid, the insurer shall add to the policy proceeds
a refund of any premium actually paid for any
period beyond the end of the policy month in
which such death occurred, provided such premium
was not waived under any policy provision
for waiver of premiums benefit. This subsection
shall not apply to single premium or paid-up
policies.
(2)
Incontestability. - A provision that the policy shall be incontestable after
being in
force during the lifetime of the insured for a
period of two (2) years from its date of issue, and
that, if the policy provides that the death benefit
provided by the policy may be increased, or
other policy provisions changed, upon the
application of the policyholder and the production of
evidence of insurability, the policy with
respect to each such increase or change shall be
incontestable after two (2) years from the
effective date of such increase or change, except in
each case for nonpayment of premiums. At the
option of the insurer, provisions relating to
benefits for total and permanent disability and
additional benefits for accidental death may be
excepted.
(b) Individual
life insurance policies delivered or issued for delivery in this state on or
after January 1, 2007 2008 may
contain in substance the following provision, or a provision
which the director deems to be more favorable to
policyholders: Suicide -- a provision that
excludes death from suicide, sane or insane. The
suicide exclusion period for the initial coverage
shall not exceed two (2) years from the date of
issue of the policy. The policy may allow a
separate suicide period, no greater than two (2)
years from the date of any increase, for any
increase in specified amount that was requested
by the owner and subject to evidence of
insurability. The suicide limitation shall be
limited to the amount of the increase. At a minimum,
a refund of all premiums paid, less dividends
paid, any indebtedness and any partial withdrawals,
shall be paid by the company in the event of
death by suicide during the initial suicide exclusion
period. For each increase in specified amount,
the settlement for suicide shall be the return of all
premium paid, reduced as specified above for the
initial coverage, applicable to the increased
amount.
SECTION 3. This
act shall apply retroactively to June 27, 2007.
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LC00536
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