Chapter 107
2016 -- H 7842 SUBSTITUTE A
Enacted 06/17/2016

A N   A C T
RELATING TO INSURANCE - CORPORATE GOVERNANCES

Introduced By: Representatives Kennedy, Shekarchi, and Marshall
Date Introduced: March 03, 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.
     (c) The requirements of this chapter shall apply to all insurers domiciled in this state.
     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.
     (c) An insurer not otherwise required to submit a CGAD under this section shall do so
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).
     (c) In order to assist in the performance of the commissioner's regulatory duties, the
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.
     (c) The National Association of Insurance Commissioners (NAIC) and third-party
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.
      (c) When any policy of insurance is procured under the authority of that license, there
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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LC004971/SUB A
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