I 

112TH CONGRESS 

1ST SESSION H. R. 2126 

To modernize the Liability Risk Retention Act of 1986 and expand coverage 

to include commercial property insurance, and for other purposes. 

IN THE HOUSE OF REPRESENTATIVES 

JUNE 3, 2011 

Mr. CAMPBELL (for himself and Mr. WELCH) introduced the following bill; 

which was referred to the Committee on Financial Services 

A BILL 

To modernize the Liability Risk Retention Act of 1986 and 

expand coverage to include commercial property insurance, and for other purposes. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Risk Retention Mod5 ernization Act of 2011’’. 


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1 SEC. 2. OVERSIGHT OF COMPLIANCE WITH PREEMPTION 

2 OF STATE LAW UNDER THE LIABILITY RISK 

3 RETENTION ACT OF 1986. 

4 The Liability Risk Retention Act of 1986 (15 U.S.C. 

5 3901 et seq.) is amended by adding at the end the fol6 lowing new section: 

7 ‘‘SEC. 8. OVERSIGHT OF COMPLIANCE WITH PREEMPTION 

8 OF STATE LAW. 

9 ‘‘(a) SURVEY.—The Director of the Federal Insur10 ance Office shall periodically survey and evaluate the ex11 tent to which each State is in compliance with the prohibi12 tion under this Act regarding State regulation of risk re13 tention groups and purchasing groups that are not domi14 ciliaries of such State and submit to the President and 

15 Congress a report on such compliance. 

16 ‘‘(b) DISPUTES.—In any dispute in which an issue 

17 arises of whether this Act preempts the regulation of a 

18 risk retention group or purchasing group by a State, any 

19 party to the dispute may make a written submission to 

20 the Director of the Federal Insurance Office to request 

21 a determination as to whether the regulation at issue is 

22 preempted by this Act. 

23 ‘‘(c) STANDARD.—The Director of the Federal Insur24 ance Office may only issue a determination under sub25 section (b) that the regulation at issue is preempted by 

26 this Act if the regulation imposes a requirement upon the 


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1 risk retention group that is inconsistent with the provi2 sions of this Act. 

3 ‘‘(d) APPLICABILITY OF ADMINISTRATIVE PROCE4 DURES ACT.—Determinations issued pursuant to sub5 section (b) shall be subject to the applicable provisions of 

6 subchapter II of chapter 5 of title 5, United States Code 

7 (relating to administrative procedure). 

8 ‘‘(e) JUDICIAL REVIEW.—Any party to the dispute 

9 described in subsection (b) may seek review of a final 

10 order of the Director of the Federal Insurance Office 

11 under such subsection in the United States Court of Ap12 peals for the District of Columbia Circuit. 

13 ‘‘(f) REGULATIONS, POLICIES, AND PROCEDURES.— 

14 Not later than 90 days after the effective date described 

15 in section 7 of the Risk Retention Modernization Act of 

16 2011, the Director of the Federal Insurance Office shall 

17 publish in the Federal Register final regulations, policy 

18 statements, guidelines, or procedures to implement this 

19 section.’’. 

20 SEC. 3. CORPORATE GOVERNANCE STANDARDS. 

21 The Liability Risk Retention Act of 1986 (15 U.S.C. 

22 3901 et seq.), as amended by section 2 of this Act, is fur23 ther amended by adding at the end the following new sec24 tion: 


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1 ‘‘SEC. 9. CORPORATE GOVERNANCE STANDARDS. 

2 ‘‘(a) GOVERNANCE STANDARDS.—The Director of 

3 the Federal Insurance Office shall, not later than 30 days 

4 after the effective date described in section 7 of the Risk 

5 Retention Modernization Act of 2011, issue corporate gov6 ernance standards for risk retention groups, which shall 

7 include the following requirements: 

8 ‘‘(1) The governing body of a risk retention 

9 group shall at all times have a majority of inde10 pendent directors. 

11 ‘‘(2) Any material relationship between a risk 

12 retention group and a service provider shall— 

13 ‘‘(A) be documented by a written contract 

14 that— 

15 ‘‘(i) is for a term of not more than 5 

16 years; and 

17 ‘‘(ii) may be terminated at any time 

18 for cause after providing reasonable notice 

19 as set forth in the contract; 

20 ‘‘(B) be approved upon commencement and 

21 upon any renewal by a majority of the inde22 pendent directors of the risk retention group; 

23 and 

24 ‘‘(C) be approved by the insurance com25 missioner of the State in which such risk reten26 tion group is chartered. 


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1 ‘‘(3) Unless the insurance commissioner of the 

2 State in which the risk retention group is chartered 

3 permits the governing body of a risk retention group 

4 to exercise the function as a whole, such risk reten5 tion group shall have an audit committee of its gov6 erning body with a written charter defining the pur7 poses of the committee, which shall include— 

8 ‘‘(A) providing oversight of— 

9 ‘‘(i) the integrity of financial state10 ments; 

11 ‘‘(ii) compliance with legal and regu12 latory requirements; 

13 ‘‘(iii) the qualifications, independence, 

14 and performance of auditors and actuaries; 

15 and 

16 ‘‘(iv) the performance of service pro17 viders; 

18 ‘‘(B) reviewing the annual audited finan19 cial statements and quarterly statements with 

20 the management of the risk retention group; 

21 ‘‘(C) reviewing the annual audited financial 

22 statements with the auditor of the risk reten23 tion group and, if advisable, reviewing quarterly 

24 financial statements with such auditor; 


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1 ‘‘(D) establishing policies with respect to 

2 risk assessment and risk management; 

3 ‘‘(E) meeting separately and periodically, 

4 either directly or through designated represent5 atives of the committee, with the management 

6 and auditor of the risk retention group; 

7 ‘‘(F) reviewing with the auditor of the risk 

8 retention group any audit problems or difficul9 ties and the response to such problems or dif10 ficulties by the management of the risk reten11 tion group; 

12 ‘‘(G) establishing clear policies regarding 

13 the hiring of employees or former employees of 

14 the current or former auditor of the risk reten15 tion group; 

16 ‘‘(H) requiring, through contract or nego17 tiation, the auditor of the risk retention group 

18 to rotate partners with primary responsibility 

19 for the audit of the risk retention group and 

20 the partner responsible for reviewing such 

21 audit, in order to assure that no individual per22 forms these services for more than 5 consecu23 tive years; and 


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1 ‘‘(I) reporting regularly to the governing 

2 body of the group regarding the matters de3 scribed in subparagraphs (A) through (H). 

4 ‘‘(4) A risk retention group shall adopt and 

5 provide upon request to the members of such risk re6 tention group governance standards that address— 

7 ‘‘(A) the means of providing evidence of 

8 the ownership interest of each member of the 

9 risk retention group; 

10 ‘‘(B) the process by which the governing 

11 body of the risk retention group is elected by 

12 the members of the risk retention group; 

13 ‘‘(C) qualification standards for and re14 sponsibilities of directors of the risk retention 

15 group; 

16 ‘‘(D) access to the management and inde17 pendent advisors of the risk retention group by 

18 the directors of the risk retention group; 

19 ‘‘(E) compensation of directors of the risk 

20 retention group, if any; 

21 ‘‘(F) orientation and education of directors 

22 of the risk retention group; 

23 ‘‘(G) succession of management of the risk 

24 retention group; and 


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1 ‘‘(H) annual performance evaluations of 

2 the management and officers of the risk reten3 tion group by the governing body of the risk re4 tention group. 

5 ‘‘(5) A risk retention group shall adopt a code 

6 of business conduct and ethics applicable to direc7 tors, officers, and employees of the risk retention 

8 group that addresses— 

9 ‘‘(A) conflicts of interest; 

10 ‘‘(B) corporate opportunities; 

11 ‘‘(C) confidentiality; 

12 ‘‘(D) fair dealing; 

13 ‘‘(E) protection and proper use of the as14 sets of the risk retention group; 

15 ‘‘(F) compliance with applicable laws and 

16 regulations; and 

17 ‘‘(G) reporting of any illegal or unethical 

18 behavior which affects the operation of the risk 

19 retention group. 

20 ‘‘(6) Any manager or chief executive officer of 

21 a risk retention group shall promptly notify the in22 surance commissioner of the State in which the 

23 group is chartered in writing if the manager or offi24 cer becomes aware of any material noncompliance 

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1 tion and such noncompliance is not cured within a 

2 reasonable period from the time it is detected, but 

3 not to exceed 60 days. 

4 ‘‘(b) DEFINITIONS.—In this section: 

5 ‘‘(1) AUDITOR.—The term ‘auditor’ means the 

6 person providing certification of the annual financial 

7 statement of a risk retention group to the insurance 

8 commissioner of each State as required by section 

9 3(d)(3). 

10 ‘‘(2) DIRECTOR.—The term ‘director’ means a 

11 member of the governing body of a risk retention 

12 group. 

13 ‘‘(3) INDEPENDENT DIRECTOR.—The term 

14 ‘independent director’ means a director of a risk re15 tention group that the governing body of such risk 

16 retention group determines has no material relation17 ship with— 

18 ‘‘(A) such risk retention group; or 

19 ‘‘(B) a service provider of such risk reten20 tion group. 

21 ‘‘(4) MATERIAL RELATIONSHIP.—The term 

22 ‘material relationship’ means a relationship between 

23 an entity or an individual and a risk retention group 

24 where such entity or individual, or a member of the 

25 immediate family of such individual or any business 


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1 with which such individual or entity is affiliated, re2 ceives compensation or payment from such risk re3 tention group during any 12-month period in an 

4 amount of— 

5 ‘‘(A) 5 percent or more of the gross writ6 ten premiums of such risk retention group for 

7 such 12-month period; or 

8 ‘‘(B) 2 percent or more of the surplus of 

9 such risk retention group as measured at the 

10 end of any fiscal quarter falling within such 12- 

11 month period. 

12 ‘‘(5) MEMBER.—The term ‘member’ means a 

13 person or entity that— 

14 ‘‘(A) is insured by a risk retention group; 

15 and 

16 ‘‘(B) maintains an ownership interest in 

17 such risk retention group in accordance with 

18 the laws of the State in which such risk reten19 tion group is domiciled. 

20 ‘‘(6) SERVICE PROVIDER.— 

21 ‘‘(A) IN GENERAL.—The term ‘service pro22 vider’ means a provider of regular ongoing in23 surance, corporate, or regulatory services to a 

24 risk retention group, including management 

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1 vestment advisors, lawyers, manager general 

2 underwriters, and any other parties responsible 

3 for underwriting, determining rates, collecting 

4 premiums, adjusting and settling claims or the 

5 preparation of financial statements. 

6 ‘‘(B) EXCEPTION.—The term ‘service pro7 vider’ does not include defense counsel retained 

8 by a risk retention group to defend claims, un9 less the amount of fees paid to such counsel 

10 would otherwise result in the counsel having a 

11 material relationship with the risk retention 

12 group. 

13 ‘‘(c) SUPERSEDURE.— 

14 ‘‘(1) IN GENERAL.—The provisions of this sec15 tion shall supersede any State law relating to the 

16 corporate governance standards required for risk re17 tention groups and purchasing groups. 

18 ‘‘(2) DEFINITIONS.—In this subsection: 

19 ‘‘(A) STATE.—The term ‘State’ includes a 

20 State and the District of Columbia, any polit21 ical subdivisions thereof, and any agency or in22 strumentality of a State. 

23 ‘‘(B) STATE LAW.—The term ‘State law’ 

24 includes all laws, decisions, rules, regulations, 


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1 or other State action having the effect of law, 

2 of any State.’’. 

3 SEC. 4. COMMERCIAL PROPERTY INSURANCE. 

4 The Liability Risk Retention Act of 1986 (15 U.S.C. 

5 3901 et seq.) is further amended— 

6 (1) in section 2(a) (15 U.S.C. 3901(a))— 

7 (A) in paragraph (4)— 

8 (i) in subparagraph (C)(i), by striking 

9 ‘‘a liability’’ and inserting ‘‘an’’; and 

10 (ii) in subparagraph (G)(i), by insert11 ing ‘‘or commercial property’’ after ‘‘liabil12 ity’’; 

13 (B) in paragraph (5)(A), by inserting ‘‘or 

14 commercial property’’ after ‘‘liability’’; 

15 (C) in paragraph (6), by striking ‘‘and’’ at 

16 the end; 

17 (D) in paragraph (7)(B), by striking the 

18 period at the end and inserting ‘‘; and’’; and 

19 (E) by adding at the end the following new 

20 paragraph: 

21 ‘‘(8) ‘commercial property insurance’ means in22 surance that indemnifies a business, nonprofit orga23 nization, or governmental entity for damage to, loss 

24 of, theft of, or destruction of real property or busi25 ness property, owned by or leased to such business, 


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1 nonprofit organization, or governmental entity, in2 cluding insurance that indemnifies a business, non3 profit organization, or governmental entity for dam4 age to, loss of, theft of, or destruction of furniture, 

5 fixtures, and inventory, from any and all perils or 

6 causes of loss and against consequential loss or dam7 age, including business interruption, other than non8 contractual legal liability for such loss or damage.’’; 

9 (2) in section 3 (15 U.S.C. 3902)— 

10 (A) in subsection (a)(1)(C), by inserting 

11 ‘‘or commercial property’’ after ‘‘liability’’; 

12 (B) in subsection (b)(2), by inserting ‘‘or 

13 commercial property’’ after ‘‘liability’’ each 

14 place it appears; and 

15 (C) in subsection (d)(1)(B), by inserting 

16 ‘‘or commercial property’’ after ‘‘liability’’; 

17 (3) in section 4 (15 U.S.C. 3903)— 

18 (A) in subsection (b)— 

19 (i) in paragraph (1), by inserting ‘‘or 

20 commercial property’’ after ‘‘liability’’; and 

21 (ii) in paragraph (2)— 

22 (I) by redesignating subpara23 graphs (B) and (C) as subparagraphs 

24 (C) and (D), respectively; and 


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1 (II) by inserting after subpara2 graph (A) the following new subpara3 graph: 

4 ‘‘(B) commercial property insurance;’’; and 

5 (B) in subsection (d)(1)(B), by inserting 

6 ‘‘and commercial property’’ after ‘‘liability’’; 

7 and 

8 (4) in section 6(b) (15 U.S.C. 3905(b)), by in9 serting ‘‘or commercial property’’ after ‘‘liability’’ 

10 each place it appears. 

11 SEC. 5. FINANCIAL STATEMENTS; DISCLOSURE REQUIRE12 MENTS; FIDUCIARY DUTY; AND UNDER13 SCORING THE EXEMPTION. 

14 The Liability Risk Retention Act of 1986 (15 U.S.C. 

15 3901 et seq.) is amended as follows: 

16 (1) FINANCIAL STATEMENTS.—In section 

17 3(d)(3) (15 U.S.C. 3902(d)(3))— 

18 (A) by redesignating subparagraphs (A) 

19 and (B) as clauses (i) and (ii), respectively, and 

20 moving the margins two ems to the right; 

21 (B) by striking ‘‘which statement shall be 

22 certified’’ and inserting ‘‘which statement 

23 shall—’’ 

24 ‘‘(A) be certified’’; 


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1 (C) in subparagraph (A)(ii) (as redesig2 nated by subparagraph (A)), by striking the pe3 riod and inserting a semicolon; and 

4 (D) by adding at the end the following new 

5 subparagraphs: 

6 ‘‘(B) be filed not later than the earlier 

7 of— 

8 ‘‘(i) June 30, for the preceding cal9 endar year; or 

10 ‘‘(ii) such time as the State in which 

11 the risk retention group is chartered re12 quires; and 

13 ‘‘(C) if not prepared in conformity with 

14 statutory accounting principles, include appro15 priate notes for conversion of such statement to 

16 statutory accounting principles.’’. 

17 (2) DISCLOSURE REQUIREMENTS.—In section 3 

18 (15 U.S.C. 3902)— 

19 (A) in subsection (a)(1)— 

20 (i) in subparagraph (G), by striking 

21 ‘‘jurisdiction;’’ and inserting ‘‘jurisdiction; 

22 and’’; 

23 (ii) in subparagraph (H), by striking 

24 ‘‘impaired; and’’ and inserting ‘‘impaired.’’; 

25 and 


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1 (iii) by striking subparagraph (I); and 

2 (B) by adding at the end the following new 

3 subsection: 

4 ‘‘(i) DISCLOSURE REQUIREMENTS.—Each risk reten5 tion group shall provide to each member of such group, 

6 on the front page and the declaration page of each insur7 ance policy issued by such group, in bold 12-point or larg8 er type, the following notice: ‘This policy is issued by your 

9 risk retention group of which you are a part owner. Your 

10 risk retention group is primarily regulated under the laws 

11 of llllll and may not be subject to all of the in12 surance laws and consumer protections of your State. If 

13 your risk retention group fails, it is not protected by a 

14 State insurance insolvency guaranty fund.’. The risk re15 tention group shall insert the name of the State in which 

16 the risk retention group is chartered or licensed in place 

17 of the blank space.’’. 

18 (3) FIDUCIARY DUTY.—In section 3 (15 U.S.C. 

19 3902), as amended by paragraph (2), by adding at 

20 the end the following new subsection: 

21 ‘‘(j) FIDUCIARY DUTY.—The board of directors of a 

22 risk retention group shall have a fiduciary duty to operate 

23 in the best interests of the group.’’. 

24 (4) UNDERSCORING THE EXEMPTION.— 


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1 (A) RISK RETENTION GROUPS.—In section 

2 3 (15 U.S.C. 3902)— 

3 (i) in subsection (a) in the matter pre4 ceding paragraph (1), by striking ‘‘Except 

5 as provided’’ and inserting ‘‘Except as spe6 cifically provided’’; and 

7 (ii) in subsection (f)(1), by inserting 

8 ‘‘or purchasing group’’ after ‘‘risk reten9 tion group’’. 

10 (B) PURCHASING GROUPS.—In section 

11 4(a) (15 U.S.C. 3903(a)), in the matter pre12 ceding paragraph (1), by striking ‘‘Except as 

13 provided’’ and inserting ‘‘Except as specifically 

14 provided’’. 

15 (5) FINANCIAL RESPONSIBILITY.—Section 6(d) 

16 (15 U.S.C. 3905(d)) is amended by adding at the 

17 end the following: ‘‘Such means may not include re18 quirements that risk retention groups be licensed or 

19 admitted by that State as a demonstration of finan20 cial responsibility.’’. 

21 SEC. 6. AMENDMENT TO SHORT TITLE. 

22 Section 1 of the Liability Risk Retention Act of 1986 

23 (15 U.S.C. 3901 note) is amended by striking ‘‘Liability 

24 Risk Retention Act of 1986’’ and inserting ‘‘Risk Reten25 tion Act of 1986’’. 


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1 SEC. 7. EFFECTIVE DATE. 

2 The amendments made by sections 2, 3, 4, and 5 

3 shall take effect on the date that is 18 months after the 

4 date of the enactment of this Act. 

Æ 


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