law16098

Chapter 098

2016 -- S 2785 SUBSTITUTE A AS AMENDED
Enacted 06/17/2016

A N A C T

RELATING TO INSURANCE - CORPORATE GOVERNANCES

Introduced By: Senators Lynch Prata, Goodwin, and Archambault

Date Introduced: March 23, 2016

It is enacted by the General Assembly as follows:

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

by adding thereto the following chapter:

CHAPTER 1.2

CORPORATE GOVERNANCE ANNUAL DISCLOSURE

27-1.2-1. Purpose and scope. -- (a) The purpose of this chapter is to:

(1) Provide the insurance commissioner a summary of an insurer or insurance group's

corporate governance structure, policies, and practices to permit the commissioner to obtain and

maintain an understanding of the insurer's corporate governance framework;

(2) Outline the requirements for completing a corporate governance annual disclosure

with the insurance commissioner; and

(3) Provide for the confidential treatment of the corporate governance annual disclosure

and related information that will contain private, confidential, and sensitive information related to

an insurer or insurance group's internal operations and proprietary and trade secret information

which, if made public, could potentially cause the insurer or insurance group competitive harm or

disadvantage.

(b) Nothing in this chapter shall be construed to prescribe or impose additional corporate

governance standards and internal procedures beyond that which is required under applicable

state corporate and insurance laws. This chapter shall not be construed to limit the commissioner's

authority, or the rights or obligations of third parties, under chapter 13.1 of this title.

27-1.2-2. Definitions. -- As used in this chapter:

(1) "Commissioner" means the director of the department of business regulation and any

assistant to the director.

(2) "Corporate governance annual disclosure" (CGAD) means a confidential report filed

by the insurer or insurance group made as required by this chapter.

(3) "Insurance group" means those insurers and affiliates included within an insurance

holding company system as defined in chapter 35 of this title.

(4) "Insurer" shall have the same meaning as set forth in §27-54.1-1, except that it shall

not include agencies, authorities, or instrumentalities of the United States, its possessions and

territories, the Commonwealth of Puerto Rico, the District of Columbia, or a state or political

subdivision of a state.

(5) "ORSA summary report" means the report filed in accordance with chapter 77 of this

title.

27-1.2-3. Disclosure requirement. -- (a) An insurer, or the insurance group of which the

insurer is a member, shall, no later than June 1 of each calendar year, submit to the commissioner

a corporate governance annual disclosure (CGAD) that contains the information described in this

section and §27-1.2-5(b). Notwithstanding any request from the commissioner made pursuant to

subsection (c), if the insurer is a member of an insurance group, the insurer shall submit the report

required by this section to the commissioner of the lead state for the insurance group, in

accordance with the laws of the lead state, as determined by the procedures outlined in the most

recent Financial Analysis Handbook adopted by the National Association of Insurance

Commissioner (NAIC).

(b) The CGAD must include a signature of the insurer or insurance group's chief

executive officer or corporate secretary attesting to the best of that individual's belief and

knowledge that the insurer has implemented the corporate governance practices and that a copy of

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

thereof.

upon the commissioner's request.

(d) For purposes of completing the CGAD, the insurer or insurance group may provide

information regarding corporate governance at the ultimate controlling parent level, an

intermediate holding company level and/or the individual legal entity level, depending upon how

the insurer or insurance group has structured its system of corporate governance. The insurer or

insurance group is encouraged to make the CGAD disclosures at the level at which the insurer's

or insurance group's risk appetite is determined; or at which the earnings, capital, liquidity,

operations, and reputation of the insurer are overseen collectively and at which the supervision of

those factors are coordinated and exercised; or the level at which legal liability for failure of

general corporate governance duties would be placed. If the insurer or insurance group

determines the level of reporting based on these criteria, it shall indicate which of the three (3)

criteria was used to determine the level of reporting and explain any subsequent changes in level

of reporting.

(e) The review of the CGAD and any additional requests for information shall be made

through the lead state as determined by the procedures within the most recent Financial Analysis

Handbook referenced in subsection (a).

(f) Insurers providing information substantially similar to the information required by this

chapter in other documents provided to the commissioner, including proxy statements filed in

conjunction with form B requirements, or other state or federal filings provided to this division of

insurance shall not be required to duplicate that information in the CGAD, but shall only be

required to cross reference the document in which the information is included.

27-1.2-4. Rules and regulations. -- The commissioner may, in accordance with the

administrative procedures act, chapter 35 of title 42, issue such rules, regulations, and orders as

shall be necessary to carry out the provisions of this chapter.

27-1.2-5. Contents of corporate governance annual disclosure. -- (a) The insurer or

insurance group shall have discretion over the responses to the CGAD inquiries, provided the

CGAD shall contain the material information necessary to permit the commissioner to obtain an

understanding of the insurer's or group's corporate governance structure, policies, and practices.

The commissioner may request additional information that they deem material and necessary to

provide the commissioner with a clear understanding of the corporate governance policies; the

reporting or information system; or controls implementing those policies.

(b) Notwithstanding subsection (a), the CGAD shall be prepared consistent with the

corporate governance annual disclosure regulation adopted by the division of insurance and

supporting information shall be maintained and made available upon examination or upon request

of the commissioner.

27-1.2-6. Confidentiality. -- (a) Documents, materials, or other information, including

the CGAD, in the possession or control of the division of insurance that are obtained by, created

by, or disclosed to the commissioner or any other person under this chapter, are recognized by

this state as being proprietary and to contain trade secrets. Subject to the disclosure requirements

of §27-1.2-5(b), all such documents, materials, or other information shall be confidential by law

and privileged; shall not be subject to access pursuant to chapter 2 of title 38; shall not be subject

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

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

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

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

materials, or other information public without the prior, written consent of the insurer. Nothing in

this section shall be construed to require written consent of the insurer before the commissioner

may share or receive confidential documents, materials, or other CGAD-related information

pursuant to subsection (c) to assist in the performance of the commissioner's regular duties.

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

other CGAD-related information, through examination or otherwise, while acting under the

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

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

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

commissioner may:

(1) Upon request, share documents, materials, or other CGAD-related information,

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

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

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

college, as described in §27-35-5.5, with the National Association of Insurance Commissioners

(NAIC), and with third-party consultants pursuant to §27-1.2-7, provided that the recipient agrees

in writing to maintain the confidentiality and privileged status of the CGAD-related documents,

material, or other information and has verified in writing the legal authority to maintain

confidentiality; and

(2) Receive documents, materials, or other CGAD-related information, including

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

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

international financial regulatory agencies, including members of any supervisory college, as

described in the §27-35-5.5, and from the NAIC, and shall maintain as confidential or privileged

any documents, materials, or information received with notice or the understanding that it is

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

material, or information.

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

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

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

provisions of this chapter.

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

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

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

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

27-1.2-7. NAIC and third-party consultants.-- (a) The commissioner may retain, at the

insurer's expense, third-party consultants, including attorneys, actuaries, accountants, and other

experts, not otherwise a part of the commissioner's staff, as may be reasonably necessary to assist

the commissioner in reviewing the CGAD and related information or the insurer's compliance

with this chapter.

(b) Any persons retained pursuant to subsection (a) shall be under the direction and

control of the commissioner and shall act in a purely advisory capacity.

consultants shall be subject to the same confidentiality standards and requirements as the

commissioner.

(d) As part of the retention process, a third-party consultant shall verify to the

commissioner, with notice to the insurer, that it is free of a conflict of interest and that it has

internal procedures in place to monitor compliance with a conflict and to comply with the

confidentiality standards and requirements of this chapter.

(e) A written agreement with the NAIC and/or a third-party consultant governing sharing

and use of information provided pursuant to this chapter shall contain the following provisions

and expressly require the written consent of the insurer prior to making public information

provided under this chapter:

(1) Specific procedures and protocols for maintaining the confidentiality and security of

CGAD-related information shared with the NAIC or a third-party consultant pursuant to this

chapter;

(2) Procedures and protocols for sharing by the NAIC only with other state regulators

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

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

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

maintain confidentiality;

(3) A provision specifying that ownership of the CGAD-related information shared with

the NAIC or a third-party consultant remains with the division of insurance and the NAIC's or

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

(4) A provision that prohibits the NAIC or a third-party consultant from storing the

information shared pursuant to this chapter in a permanent database after the underlying analysis

is completed;

(5) A provision requiring the NAIC or third-party consultant to provide prompt notice to

the commissioner and to the insurer or insurance group regarding any subpoena, request for

disclosure, or request for production of the insurer's CGAD-related information; and

(6) A requirement that the NAIC or a third-party consultant consent to intervention by an

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

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

third- party consultant pursuant to this chapter.

27-1.2-8. Sanctions. -- Any insurer failing, without just cause, to timely file the CGAD

as required in this chapter shall be required, after notice and hearing, to pay a penalty of two

hundred and fifty dollars ($250) for each day's delay, to be recovered by the commissioner, and

the penalty so recovered shall be paid into the general revenue fund of this state. The maximum

penalty under this section is two hundred and fifty thousand dollars ($250,000). The

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

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

27-1.2-9. Severability clause. -- If any provision of this chapter other than §27-1.2- 6, or

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

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

provision or application, and to that end the provisions of this chapter, with the exception of §27-

1.2-6, are severable.

SECTION 2. Section 27-3-38 of the General Laws in Chapter 27-3 entitled "Surplus

Lines Insurance" is hereby amended to read as follows:

27-3-38. Surplus line brokers -- License -- Affidavit of inability to obtain insurance -

- Reports and records -- Premium tax -- Notice to purchasers. -- (a) The insurance

commissioner may issue a surplus line broker's license to any person authorizing the licensee to

procure, subject to the restrictions provided in this section, policies of insurance, except life and

health and accident, from eligible surplus lines insurers. Residents of this state must hold a

property and casualty insurance producer license to qualify for a surplus lines broker license. This

license may be denied, suspended, or revoked by the insurance commissioner whenever, in the

commissioner's judgment, any of the bases under § 27-2.4-14 exist. Before any license is issued

by the insurance commissioner and before each renewal of a license, there shall be filed in his or

her office a written application by the person desiring the license in the form, and containing any

information, that the insurance commissioner may prescribe. For the purposes of carrying out the

provisions of the Nonadmitted and Reinsurance Reform Act of 2010, the commissioner is

authorized to utilize the national insurance producer database of the National Association of

Insurance Commissioners (NAIC), or any other equivalent uniform national database, for the

licensure of a person as a surplus lines producer and for renewal of such license. For insureds

whose home state is this state, a person shall not procure a contract of surplus lines insurance with

a nonadmitted insurer unless the person possesses a current surplus lines insurance license issued

by the commissioner.

(b) A Rhode Island resident business entity acting as a surplus line broker may elect to

obtain a surplus line broker license. Application shall be made using the uniform business entity

application. Prior to approving the application, the commissioner shall find both of the following:

(1) The business entity has paid the appropriate fees.

(2) The business entity has designated a licensed surplus line broker responsible for the

business entity's compliance with the insurance laws and rules of this state.

shall be executed, both by the licensee and by the insured, affidavits setting forth facts showing

that the insured, or a licensed Rhode Island producer, were unable, after diligent effort, to procure

from no less than three (3) admitted insurers the full amount of insurance required to protect the

property owned or controlled by the insured or the risks insured. Provided, however, the

aforementioned affidavit shall not be required when insuring the following interest: amusement

parks and devices, environmental improvement and/or remediation sites, vacant property or

property under renovation, demolition operations, event cancellation due to weather, railroad

liability, discontinued products, fireworks and pyrotechnics, warehouseman's legal liability,

excess property coverage, private flood, and contingent liability. In addition, no such affidavit is

required for exempt commercial purchasers as defined by the Nonadmitted and Reinsurance

Reform Act of 2010. For purposes of this section, residual market mechanisms shall not be

considered authorized insurers. Prior to renewing, continuing, or extending any policy, the

licensed surplus line broker must confirm that the insurer is on the insurance commissioner's list

of approval surplus line insurers in this state.

(d) The licensee shall keep a complete and separate record of all policies procured from

approved surplus lines insurers under the license and these records shall be open to the

examination of both the insurance commissioner and tax administrator at all reasonable times,

and shall show the exact amount of each kind of insurance permitted under this section which has

been procured for each insured,; the gross premiums charged by the insurers for each kind of

insurance permitted under this section which were returned to each insured,; the name of the

insurer or insurers which issued each of these policies,; the effective dates of these policies,; and

the terms for which these policies were issued. The licensee shall file a yearly report with the

insurance commissioner on a form prescribed by the insurance commissioner showing the

business procured under the surplus line license for the preceding calendar year, and the report

shall be due annually on or before April 1.

(e) Every person, firm, or corporation licensed pursuant to the provisions of this section

shall file with the insurance commissioner, at the time of the insurance producer license renewal,

sufficient information, as determined by the insurance commissioner, whether a licensee or a

person acting on the licensee's behalf, has paid to the tax administrator, for all policies procured

by the licensee pursuant to the license during the next preceding calendar year, a tax, computed at

the rate of four percent (4%) on the gross premiums charged the insured by the insurers, less the

amount of premiums returned to the insured.

(f) Every application form for insurance from a surplus lines insurer, every affidavit

form executed by the insured, and every policy (on its front and declaration pages) issued by the

surplus lines insurer, shall contain in ten- (10) point (10) type the following notice:

NOTICE

THIS INSURANCE CONTRACT HAS BEEN PLACED WITH AN INSURER NOT

LICENSED TO DO BUSINESS IN THE STATE OF RHODE ISLAND BUT APPROVED AS

A SURPLUS LINES INSURER. THE INSURER IS NOT A MEMBER OF THE RHODE

ISLAND INSURERS INSOLVENCY FUND. SHOULD THE INSURER BECOME

INSOLVENT, THE PROTECTION AND BENEFITS OF THE RHODE ISLAND INSURERS

INSOLVENCY FUND ARE NOT AVAILABLE.

SECTION 2. Section 1 of this act shall take effect on January 1, 2017. The remaining

sections of this act shall take effect upon passage.

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LC005138/SUB A

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