2023 Utah Code › Title 31A - Insurance Code › Chapter 15 - Unauthorized Insurers, Surplus Lines, and Risk Retention Groups › Part 2 - Risk Retention Groups Act › Section 203 - Risk retention groups chartered in this state.

Effective 5/10/2016
31A-15-203.
Risk retention groups chartered in this state.
(1) As used in this section:
(a) "Board of directors" or "board" means the governing body of the risk retention group elected by the shareholders or members to establish policy, elect or appoint officers and committees, and make other governing decisions.
(b) "Director" means a natural person designated in the articles of the risk retention group, or designated, elected, or appointed by any other manner, name, or title to act as a director.
(2)
(a) A risk retention group under this part shall be chartered and licensed to write only liability insurance pursuant to this part and, except as provided elsewhere in this part, shall comply with all of the laws, rules, and requirements that apply to liability insurers chartered and licensed in this state, and with Section 31A-15-204 to the extent the requirements are not a limitation on other laws, rules, or requirements of this state.
(b) Notwithstanding any other provision to the contrary, all risk retention groups chartered in this state shall file with the commissioner and the National Association of Insurance Commissioners an annual statement in a form prescribed by the commissioner and completed in accordance with the statement instructions and the National Association of Insurance Commissioners Accounting Practices and Procedures Manual.
(3) Before it may offer insurance in any state, each risk retention group shall also submit for approval to the commissioner of this state a plan of operation or feasibility study. The risk retention group shall submit an appropriate revision of the plan or study in the event of any subsequent material change in any item of the plan of operation or feasibility study within 10 days of any change. The group may not offer any additional kinds of liability insurance, in this state or in any other state, until any revision of the plan or study is approved by the commissioner.
(4)
(a) At the time of filing its application for charter, the risk retention group shall provide to the commissioner in summary form the following information:
(i) the identity of the initial members of the group;
(ii) the identity of those individuals who organized the group or who will provide administrative services or otherwise influence or control the activities of the group;
(iii) the amount and nature of initial capitalization;
(iv) the coverages to be afforded; and
(v) the states in which the group intends to operate.
(b) Upon receipt of this information, the commissioner shall forward the information to the National Association of Insurance Commissioners. Providing notification to the National Association of Insurance Commissioners is in addition to, and may not be sufficient to satisfy, the requirements of Section 31A-15-204 or any other sections of this part.
(5) The governance standards for risk retention groups are as follows:
(a) A risk retention group that exists as of May 10, 2016, shall be in compliance with the governance standards described in this Subsection (5) by no later than May 10, 2017. A risk retention group licensed on or after May 10, 2016, shall be in compliance with the governance standards described in this Subsection (5) at the time of licensure.
(b) The board of directors of a risk retention group shall have a majority of independent directors. If the risk retention group is a reciprocal:
(i) the attorney-in-fact is required to adhere to the same standards regarding independence of operation and governance as imposed on the risk retention group's board of directors and subscribers advisory committee under these standards; and
(ii) to the extent permissible under state law, service providers of a reciprocal risk retention group shall contract with the risk retention group and not the attorney-in-fact.
(c) A director does not qualify as independent unless the board of directors affirmatively determines that the director has no material relationship with the risk retention group. Each risk retention group shall disclose these determinations to its domestic regulator, at least annually. For this purpose, any person who is a direct or indirect owner of, or subscriber in, the risk retention group or is an officer, director, or employee of the owner and insured, is considered to be independent, unless some other position of the officer, director, or employee constitutes a material relationship, as contemplated by Section 3901(a)(4)(E)(ii) of the Liability Risk Retention Act.
(d) Material relationship of a person with the risk retention group includes the following:
(i) A material relationship exists if the person receives in any one 12-month period compensation or payment of any other item of value by the person, a member of the person's immediate family, or a business with which the person is affiliated, from the risk retention group or a consultant or service provider to the risk retention group is greater than the greater of the following as measured at the end of any fiscal quarter falling in the 12-month period:
(A) 5% of the risk retention group's gross written premium for the 12-month period; or
(B) 2% of the risk retention group's surplus.
(ii) The person or immediate family member of the person is not independent until one year after the person's compensation from the risk retention group falls below the threshold outlined in Subsection (5)(d)(i).
(iii) A material relationship exists if a director or an immediate family member of a director is affiliated with or employed in a professional capacity by a present or former internal or external auditor of the risk retention group.
(iv) The director or immediate family member of a director described in Subsection (5)(d)(iii) is not independent until one year after the end of the affiliation, employment, or auditing relationship.
(v) A material relationship exists if the director or immediate family member of a director who is employed as an executive officer of another company where any of the risk retention group's present executives serve on that other company's board of directors is not independent until one year after the end of the service or the employment relationship.
(e)
(i) The term of any material service provider contract with the risk retention group may not exceed five years. A material service provider contract, or its renewal, shall require the approval of the majority of the risk retention group's independent directors. The service provider contract is considered material if the amount to be paid for the contract is greater than or equal to the greater of:
(A) 5% of the risk retention group's annual gross written premium; or
(B) 2% of the risk retention group's surplus.
(ii) For purposes of Subsection (5)(e)(i), "service provider" includes a captive manager, auditor, accountant, actuary, investment advisor, lawyer, managing general underwriter, or other party responsible for underwriting, determining rates, collecting premiums, adjusting and settling claims, or preparing financial statements. A reference to "lawyer" in this Subsection (5)(e)(ii) does not include defense counsel retained by the risk retention group to defend claims, unless the amount of fees paid to the lawyer is "material" as referenced in Section (5)(e)(i).
(iii) A service provider contract meeting the definition of material relationship contained in Section (5)(d) may not be entered into unless the risk retention group has, at least 30 days before entering into the service provider contract, notified the commissioner in writing of its intention to enter into the transaction and the commissioner has not disapproved it within the 30-day period.
(iv) The risk retention group's board of directors shall have the right to terminate any service provider, audit contract, or actuarial contract at any time for cause after providing adequate notice as defined in the contract.
(f) The risk retention group's board of directors shall adopt a written policy in the plan of operation as approved by the board that requires the board to:
(i) assure that an owner of the risk retention group receive evidence of ownership interest;
(ii) develop a set of governance standards applicable to the risk retention group;
(iii) oversee the evaluation of the risk retention group's management including the performance of the captive manager, managing general underwriter, or one or more other parties responsible for underwriting, determining rates, collecting premiums, adjusting or settling claims, or preparing financial statements;
(iv) review and approve the amount to be paid for all material service providers; and
(v) review and approve at least annually:
(A) the risk retention group's goals and objectives relevant to the compensation of officers and service providers;
(B) the officers' and service providers' performance in light of those goals and objectives; and
(C) the continued engagement of the officers and material service providers.
(g)
(i) A risk retention group shall have an audit committee composed of at least three independent board members as defined in Subsection (5)(c). A non-independent board member may participate in the activities of the audit committee, if invited by the members of the audit committee, but cannot be a member of the audit committee.
(ii) The audit committee shall have a written charter that defines the audit committee's purpose, which, at a minimum, shall be to:
(A) assist the board's oversight of the integrity of the financial statements, the compliance with legal and regulatory requirements, and the qualifications, independence, and performance of the independent auditor and actuary;
(B) discuss the annual audited financial statements and quarterly financial statements with management;
(C) discuss the annual audited financial statements with its independent auditor and, if advisable, discuss its quarterly financial statements with its independent auditor;
(D) discuss policies with respect to risk assessment and risk management;
(E) meet separately and periodically, either directly or through a designated representative of the committee, with management and the independent auditor;
(F) review with the independent auditor any audit problems or difficulties and management's response;
(G) set clear hiring policies of the risk retention group as to the hiring of employees or former employees of the independent auditor;
(H) require the external auditor to rotate the lead or coordinating audit partner having primary responsibility for the risk retention group's audit as well as the audit partner responsible for reviewing that audit so that neither individual performs audit services for more than five consecutive fiscal years; and
(I) report regularly to the board of directors.
(iii) The domestic regulator may waive the requirement to establish an audit committee composed of independent board members if the risk retention group is able to demonstrate to the domestic regulator that it is impracticable to do so and the risk retention group's board of directors itself is otherwise able to accomplish the purposes of an audit committee, as described in this Section (5)(g).
(h) The board of directors shall adopt and disclose governance standards, where "disclose" means making such information available through election, including posting the information on the risk retention group's website or other means, and providing such information to owners upon request, which shall include:
(i) a process by which the directors are elected by the owners;
(ii) director qualification standards;
(iii) director responsibilities;
(iv) director access to management and, as necessary and appropriate, independent advisors;
(v) director compensation;
(vi) director orientation and continuing education;
(vii) the policies and procedures that are followed for management succession; and
(viii) the policies and procedures that are followed for annual performance evaluation of the board.
(i) The board of directors shall adopt and disclose a code of business conduct and ethics for directors, officers, and employees and promptly disclose to the board of directors any waivers of the code for directors or executive officers, which shall include the following topics:
(i) conflicts of interest;
(ii) matters covered under the corporate opportunities doctrine under the state of domicile;
(iii) confidentiality;
(iv) fair dealing;
(v) protection and proper use of risk retention group assets;
(vi) compliance with all applicable laws, rules, and regulations; and
(vii) requiring the reporting of any illegal or unethical behavior that affects the operation of the risk retention group.
(j) A captive manager, president, or chief executive officer of a risk retention group shall promptly notify the domestic regulator in writing if the captive manager, president, or chief executive officer becomes aware of any material non-compliance with any of the governance standards in this Subsection (5).
Amended by Chapter 138, 2016 General Session