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 insur-
ance, and for other purposes. 
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
SECTION 1. SHORT TITLE. 
This Act may be cited as the ‘‘Risk Retention Mod-
ernization Act of 2011’’. 
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SEC. 2. OVERSIGHT OF COMPLIANCE WITH PREEMPTION 
OF STATE LAW UNDER THE LIABILITY RISK 
RETENTION ACT OF 1986. 
The Liability Risk Retention Act of 1986 (15 U.S.C. 
3901 et seq.) is amended by adding at the end the fol-
lowing new section: 
‘‘SEC. 8. OVERSIGHT OF COMPLIANCE WITH PREEMPTION 
OF STATE LAW. 
‘‘(a) SURVEY.—The Director of the Federal Insur-
ance Office shall periodically survey and evaluate the ex-
tent to which each State is in compliance with the prohibi-
tion under this Act regarding State regulation of risk re-
tention groups and purchasing groups that are not domi-
ciliaries of such State and submit to the President and 
Congress a report on such compliance. 
‘‘(b) DISPUTES.—In any dispute in which an issue 
arises of whether this Act preempts the regulation of a 
risk retention group or purchasing group by a State, any 
party to the dispute may make a written submission to 
the Director of the Federal Insurance Office to request 
a determination as to whether the regulation at issue is 
preempted by this Act. 
‘‘(c) STANDARD.—The Director of the Federal Insur-
ance Office may only issue a determination under sub-
section (b) that the regulation at issue is preempted by 
this Act if the regulation imposes a requirement upon the 
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risk retention group that is inconsistent with the provi-
sions of this Act. 
‘‘(d) APPLICABILITY
OF ADMINISTRATIVE PROCE-
DURES ACT.—Determinations issued pursuant to sub-
section (b) shall be subject to the applicable provisions of 
subchapter II of chapter 5 of title 5, United States Code 
(relating to administrative procedure). 
‘‘(e) JUDICIAL REVIEW.—Any party to the dispute 
described in subsection (b) may seek review of a final 
order of the Director of the Federal Insurance Office 
under such subsection in the United States Court of Ap-
peals for the District of Columbia Circuit. 
‘‘(f) REGULATIONS, POLICIES, AND PROCEDURES.— 
Not later than 90 days after the effective date described 
in section 7 of the Risk Retention Modernization Act of 
2011, the Director of the Federal Insurance Office shall 
publish in the Federal Register final regulations, policy 
statements, guidelines, or procedures to implement this 
section.’’. 
SEC. 3. CORPORATE GOVERNANCE STANDARDS. 
The Liability Risk Retention Act of 1986 (15 U.S.C. 
3901 et seq.), as amended by section 2 of this Act, is fur-
ther amended by adding at the end the following new sec-
tion: 
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‘‘SEC. 9. CORPORATE GOVERNANCE STANDARDS. 
‘‘(a) GOVERNANCE STANDARDS.—The Director of 
the Federal Insurance Office shall, not later than 30 days 
after the effective date described in section 7 of the Risk 
Retention Modernization Act of 2011, issue corporate gov-
ernance standards for risk retention groups, which shall 
include the following requirements: 
‘‘(1) The governing body of a risk retention 
group shall at all times have a majority of inde-
pendent directors. 
‘‘(2) Any material relationship between a risk 
retention group and a service provider shall— 
‘‘(A) be documented by a written contract 
that— 
‘‘(i) is for a term of not more than 5 
years; and 
‘‘(ii) may be terminated at any time 
for cause after providing reasonable notice 
as set forth in the contract; 
‘‘(B) be approved upon commencement and 
upon any renewal by a majority of the inde-
pendent directors of the risk retention group; 
and 
‘‘(C) be approved by the insurance com-
missioner of the State in which such risk reten-
tion group is chartered. 
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‘‘(3) Unless the insurance commissioner of the 
State in which the risk retention group is chartered 
permits the governing body of a risk retention group 
to exercise the function as a whole, such risk reten-
tion group shall have an audit committee of its gov-
erning body with a written charter defining the pur-
poses of the committee, which shall include— 
‘‘(A) providing oversight of— 
‘‘(i) the integrity of financial state-
ments; 
‘‘(ii) compliance with legal and regu-
latory requirements; 
‘‘(iii) the qualifications, independence, 
and performance of auditors and actuaries; 
and 
‘‘(iv) the performance of service pro-
viders; 
‘‘(B) reviewing the annual audited finan-
cial statements and quarterly statements with 
the management of the risk retention group; 
‘‘(C) reviewing the annual audited financial 
statements with the auditor of the risk reten-
tion group and, if advisable, reviewing quarterly 
financial statements with such auditor; 
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‘‘(D) establishing policies with respect to 
risk assessment and risk management; 
‘‘(E) meeting separately and periodically, 
either directly or through designated represent-
atives of the committee, with the management 
and auditor of the risk retention group; 
‘‘(F) reviewing with the auditor of the risk 
retention group any audit problems or difficul-
ties and the response to such problems or dif-
ficulties by the management of the risk reten-
tion group; 
‘‘(G) establishing clear policies regarding 
the hiring of employees or former employees of 
the current or former auditor of the risk reten-
tion group; 
‘‘(H) requiring, through contract or nego-
tiation, the auditor of the risk retention group 
to rotate partners with primary responsibility 
for the audit of the risk retention group and 
the partner responsible for reviewing such 
audit, in order to assure that no individual per-
forms these services for more than 5 consecu-
tive years; and 
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‘‘(I) reporting regularly to the governing 
body of the group regarding the matters de-
scribed in subparagraphs (A) through (H). 
‘‘(4) A risk retention group shall adopt and 
provide upon request to the members of such risk re-
tention group governance standards that address— 
‘‘(A) the means of providing evidence of 
the ownership interest of each member of the 
risk retention group; 
‘‘(B) the process by which the governing 
body of the risk retention group is elected by 
the members of the risk retention group; 
‘‘(C) qualification standards for and re-
sponsibilities of directors of the risk retention 
group; 
‘‘(D) access to the management and inde-
pendent advisors of the risk retention group by 
the directors of the risk retention group; 
‘‘(E) compensation of directors of the risk 
retention group, if any; 
‘‘(F) orientation and education of directors 
of the risk retention group; 
‘‘(G) succession of management of the risk 
retention group; and 
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‘‘(H) annual performance evaluations of 
the management and officers of the risk reten-
tion group by the governing body of the risk re-
tention group. 
‘‘(5) A risk retention group shall adopt a code 
of business conduct and ethics applicable to direc-
tors, officers, and employees of the risk retention 
group that addresses— 
‘‘(A) conflicts of interest; 
‘‘(B) corporate opportunities; 
‘‘(C) confidentiality; 
‘‘(D) fair dealing; 
‘‘(E) protection and proper use of the as-
sets of the risk retention group; 
‘‘(F) compliance with applicable laws and 
regulations; and 
‘‘(G) reporting of any illegal or unethical 
behavior which affects the operation of the risk 
retention group. 
‘‘(6) Any manager or chief executive officer of 
a risk retention group shall promptly notify the in-
surance commissioner of the State in which the 
group is chartered in writing if the manager or offi-
cer becomes aware of any material noncompliance 
with any governance standard required by this sec-
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tion and such noncompliance is not cured within a 
reasonable period from the time it is detected, but 
not to exceed 60 days. 
‘‘(b) DEFINITIONS.—In this section: 
‘‘(1) AUDITOR.—The term ‘auditor’ means the 
person providing certification of the annual financial 
statement of a risk retention group to the insurance 
commissioner of each State as required by section 
3(d)(3). 
‘‘(2) DIRECTOR.—The term ‘director’ means a 
member of the governing body of a risk retention 
group. 
‘‘(3) 
INDEPENDENT
DIRECTOR.—The 
term 
‘independent director’ means a director of a risk re-
tention group that the governing body of such risk 
retention group determines has no material relation-
ship with— 
‘‘(A) such risk retention group; or 
‘‘(B) a service provider of such risk reten-
tion group. 
‘‘(4) MATERIAL
RELATIONSHIP.—The term 
‘material relationship’ means a relationship between 
an entity or an individual and a risk retention group 
where such entity or individual, or a member of the 
immediate family of such individual or any business 
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with which such individual or entity is affiliated, re-
ceives compensation or payment from such risk re-
tention group during any 12-month period in an 
amount of— 
‘‘(A) 5 percent or more of the gross writ-
ten premiums of such risk retention group for 
such 12-month period; or 
‘‘(B) 2 percent or more of the surplus of 
such risk retention group as measured at the 
end of any fiscal quarter falling within such 12- 
month period. 
‘‘(5) MEMBER.—The term ‘member’ means a 
person or entity that— 
‘‘(A) is insured by a risk retention group; 
and 
‘‘(B) maintains an ownership interest in 
such risk retention group in accordance with 
the laws of the State in which such risk reten-
tion group is domiciled. 
‘‘(6) SERVICE PROVIDER.— 
‘‘(A) IN GENERAL.—The term ‘service pro-
vider’ means a provider of regular ongoing in-
surance, corporate, or regulatory services to a 
risk retention group, including management 
companies, auditors, accountants, actuaries, in-
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vestment advisors, lawyers, manager general 
underwriters, and any other parties responsible 
for underwriting, determining rates, collecting 
premiums, adjusting and settling claims or the 
preparation of financial statements. 
‘‘(B) EXCEPTION.—The term ‘service pro-
vider’ does not include defense counsel retained 
by a risk retention group to defend claims, un-
less the amount of fees paid to such counsel 
would otherwise result in the counsel having a 
material relationship with the risk retention 
group. 
‘‘(c) SUPERSEDURE.— 
‘‘(1) IN GENERAL.—The provisions of this sec-
tion shall supersede any State law relating to the 
corporate governance standards required for risk re-
tention groups and purchasing groups. 
‘‘(2) DEFINITIONS.—In this subsection: 
‘‘(A) STATE.—The term ‘State’ includes a 
State and the District of Columbia, any polit-
ical subdivisions thereof, and any agency or in-
strumentality of a State. 
‘‘(B) STATE LAW.—The term ‘State law’ 
includes all laws, decisions, rules, regulations, 
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or other State action having the effect of law, 
of any State.’’. 
SEC. 4. COMMERCIAL PROPERTY INSURANCE. 
The Liability Risk Retention Act of 1986 (15 U.S.C. 
3901 et seq.) is further amended— 
(1) in section 2(a) (15 U.S.C. 3901(a))— 
(A) in paragraph (4)— 
(i) in subparagraph (C)(i), by striking 
‘‘a liability’’ and inserting ‘‘an’’; and 
(ii) in subparagraph (G)(i), by insert-
ing ‘‘or commercial property’’ after ‘‘liabil-
ity’’; 
(B) in paragraph (5)(A), by inserting ‘‘or 
commercial property’’ after ‘‘liability’’; 
(C) in paragraph (6), by striking ‘‘and’’ at 
the end; 
(D) in paragraph (7)(B), by striking the 
period at the end and inserting ‘‘; and’’; and 
(E) by adding at the end the following new 
paragraph: 
‘‘(8) ‘commercial property insurance’ means in-
surance that indemnifies a business, nonprofit orga-
nization, or governmental entity for damage to, loss 
of, theft of, or destruction of real property or busi-
ness property, owned by or leased to such business, 
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nonprofit organization, or governmental entity, in-
cluding insurance that indemnifies a business, non-
profit organization, or governmental entity for dam-
age to, loss of, theft of, or destruction of furniture, 
fixtures, and inventory, from any and all perils or 
causes of loss and against consequential loss or dam-
age, including business interruption, other than non-
contractual legal liability for such loss or damage.’’; 
(2) in section 3 (15 U.S.C. 3902)— 
(A) in subsection (a)(1)(C), by inserting 
‘‘or commercial property’’ after ‘‘liability’’; 
(B) in subsection (b)(2), by inserting ‘‘or 
commercial property’’ after ‘‘liability’’ each 
place it appears; and 
(C) in subsection (d)(1)(B), by inserting 
‘‘or commercial property’’ after ‘‘liability’’; 
(3) in section 4 (15 U.S.C. 3903)— 
(A) in subsection (b)— 
(i) in paragraph (1), by inserting ‘‘or 
commercial property’’ after ‘‘liability’’; and 
(ii) in paragraph (2)— 
(I) by redesignating subpara-
graphs (B) and (C) as subparagraphs 
(C) and (D), respectively; and 
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(II) by inserting after subpara-
graph (A) the following new subpara-
graph: 
‘‘(B) commercial property insurance;’’; and 
(B) in subsection (d)(1)(B), by inserting 
‘‘and commercial property’’ after ‘‘liability’’; 
and 
(4) in section 6(b) (15 U.S.C. 3905(b)), by in-
serting ‘‘or commercial property’’ after ‘‘liability’’ 
each place it appears. 
SEC. 5. FINANCIAL STATEMENTS; DISCLOSURE REQUIRE-
MENTS; 
FIDUCIARY 
DUTY; 
AND 
UNDER-
SCORING THE EXEMPTION. 
The Liability Risk Retention Act of 1986 (15 U.S.C. 
3901 et seq.) is amended as follows: 
(1) 
FINANCIAL
STATEMENTS.—In 
section 
3(d)(3) (15 U.S.C. 3902(d)(3))— 
(A) by redesignating subparagraphs (A) 
and (B) as clauses (i) and (ii), respectively, and 
moving the margins two ems to the right; 
(B) by striking ‘‘which statement shall be 
certified’’ and inserting ‘‘which statement 
shall—’’ 
‘‘(A) be certified’’; 
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(C) in subparagraph (A)(ii) (as redesig-
nated by subparagraph (A)), by striking the pe-
riod and inserting a semicolon; and 
(D) by adding at the end the following new 
subparagraphs: 
‘‘(B) be filed not later than the earlier 
of— 
‘‘(i) June 30, for the preceding cal-
endar year; or 
‘‘(ii) such time as the State in which 
the risk retention group is chartered re-
quires; and 
‘‘(C) if not prepared in conformity with 
statutory accounting principles, include appro-
priate notes for conversion of such statement to 
statutory accounting principles.’’. 
(2) DISCLOSURE REQUIREMENTS.—In section 3 
(15 U.S.C. 3902)— 
(A) in subsection (a)(1)— 
(i) in subparagraph (G), by striking 
‘‘jurisdiction;’’ and inserting ‘‘jurisdiction; 
and’’; 
(ii) in subparagraph (H), by striking 
‘‘impaired; and’’ and inserting ‘‘impaired.’’; 
and 
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(iii) by striking subparagraph (I); and 
(B) by adding at the end the following new 
subsection: 
‘‘(i) DISCLOSURE REQUIREMENTS.—Each risk reten-
tion group shall provide to each member of such group, 
on the front page and the declaration page of each insur-
ance policy issued by such group, in bold 12-point or larg-
er type, the following notice: ‘This policy is issued by your 
risk retention group of which you are a part owner. Your 
risk retention group is primarily regulated under the laws 
of llllll and may not be subject to all of the in-
surance laws and consumer protections of your State. If 
your risk retention group fails, it is not protected by a 
State insurance insolvency guaranty fund.’. The risk re-
tention group shall insert the name of the State in which 
the risk retention group is chartered or licensed in place 
of the blank space.’’. 
(3) FIDUCIARY DUTY.—In section 3 (15 U.S.C. 
3902), as amended by paragraph (2), by adding at 
the end the following new subsection: 
‘‘(j) FIDUCIARY DUTY.—The board of directors of a 
risk retention group shall have a fiduciary duty to operate 
in the best interests of the group.’’. 
(4) UNDERSCORING THE EXEMPTION.— 
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(A) RISK RETENTION GROUPS.—In section 
3 (15 U.S.C. 3902)— 
(i) in subsection (a) in the matter pre-
ceding paragraph (1), by striking ‘‘Except 
as provided’’ and inserting ‘‘Except as spe-
cifically provided’’; and 
(ii) in subsection (f)(1), by inserting 
‘‘or purchasing group’’ after ‘‘risk reten-
tion group’’. 
(B) PURCHASING
GROUPS.—In section 
4(a) (15 U.S.C. 3903(a)), in the matter pre-
ceding paragraph (1), by striking ‘‘Except as 
provided’’ and inserting ‘‘Except as specifically 
provided’’. 
(5) FINANCIAL RESPONSIBILITY.—Section 6(d) 
(15 U.S.C. 3905(d)) is amended by adding at the 
end the following: ‘‘Such means may not include re-
quirements that risk retention groups be licensed or 
admitted by that State as a demonstration of finan-
cial responsibility.’’. 
SEC. 6. AMENDMENT TO SHORT TITLE. 
Section 1 of the Liability Risk Retention Act of 1986 
(15 U.S.C. 3901 note) is amended by striking ‘‘Liability 
Risk Retention Act of 1986’’ and inserting ‘‘Risk Reten-
tion Act of 1986’’. 
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SEC. 7. EFFECTIVE DATE. 
The amendments made by sections 2, 3, 4, and 5 
shall take effect on the date that is 18 months after the 
date of the enactment of this Act. 
Æ 
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