2016 -- H 7842 SUBSTITUTE A

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LC004971/SUB A

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     STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2016

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A N   A C T

RELATING TO INSURANCE - CORPORATE GOVERNANCES

     

     Introduced By: Representatives Kennedy, Shekarchi, and Marshall

     Date Introduced: March 03, 2016

     Referred To: House Corporations

     (Business Regulation)

It is enacted by the General Assembly as follows:

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

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by adding thereto the following chapter:

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CHAPTER 1.2

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CORPORATE GOVERNANCE ANNUAL DISCLOSURE

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

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

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

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

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

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with the insurance commissioner; and

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

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

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

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

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disadvantage.

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

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

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

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

 

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     (c) The requirements of this chapter shall apply to all insurers domiciled in this state.

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

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

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assistant to the director.

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

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

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

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

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

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

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

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subdivision of a state.

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

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title.

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

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

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

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

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

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submit the report required by this section to the commissioner of the lead state for the insurance

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

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the most recent Financial Analysis Handbook adopted by the National Association of Insurance

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Commissioner (NAIC).

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

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

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

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

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thereof.

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     (c) An insurer not otherwise required to submit a CGAD under this section shall do so

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upon the commissioner's request.

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

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

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

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

 

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

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

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

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

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

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

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

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of reporting.

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

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

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Handbook referenced in subsection (a) of this section.

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

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

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

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

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

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

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

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

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     27-1.2-5. Contents of Corporate Governance Annual Disclosure. -- (a) The insurer or

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

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

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

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

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

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reporting or information system or controls implementing those policies.

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     (b) Notwithstanding subsection (a) of this section, the CGAD shall be prepared consistent

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

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

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request of the commissioner.

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

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

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

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

 

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

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

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

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

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

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

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

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

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

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pursuant to subsection (c) of this section to assist in the performance of the commissioner's

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regular duties.

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

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CGAD related information, through examination or otherwise, while acting under the authority of

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

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

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

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section.

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     (c) In order to assist in the performance of the commissioner's regulatory duties, the

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commissioner may:

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

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

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subsection (a) of this section, including proprietary and trade secret documents and materials with

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other state, federal and international financial regulatory agencies, including members of any

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supervisory college, as described in §27-35-5.5, with the NAIC, and with third-party consultants

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pursuant to §27-1.2-7, provided that the recipient agrees in writing to maintain the confidentiality

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and privileged status of the CGAD related documents, material or other information and has

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verified in writing the legal authority to maintain confidentiality; and

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

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

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

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

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

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

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

 

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material or information.

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

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

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

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provisions of this chapter.

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

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

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

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

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

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

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

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

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with this chapter.

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     (b) Any persons retained pursuant to subsection (a) of this section shall be under the

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

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     (c) The NAIC and third-party consultants shall be subject to the same confidentiality

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standards and requirements as the commissioner.

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

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

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

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confidentiality standards and requirements of this chapter.

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

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

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

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provided under this chapter:

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

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

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chapter;

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

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

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

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

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maintain confidentiality;

 

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

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

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

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

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

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is completed;

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

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

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

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

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

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

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third- party consultant pursuant to this chapter.

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

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

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

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

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

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

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

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

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

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

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

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1.2-6, are severable.

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

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Lines Insurance" is hereby amended to read as follows:

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

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

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

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

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

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

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

 

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

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

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

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

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

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authorized to utilize the national insurance producer database of the NAIC, or any other

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equivalent uniform national database, for the licensure of a person as a surplus lines producer and

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for renewal of such license. For insureds whose home state is this state, a person shall not procure

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a contract of surplus lines insurance with a nonadmitted insurer unless the person possesses a

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current surplus lines insurance license issued by the commissioner.

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

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

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

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

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

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

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      (c) When any policy of insurance is procured under the authority of that license, there

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

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

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

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

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

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

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

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

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

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

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

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

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

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of approval surplus line insurers in this state.

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

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

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

 

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

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

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

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

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

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

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

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shall be due annually on or before April 1.

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

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

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

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

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

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

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amount of premiums returned to the insured.

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

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

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

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NOTICE

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     THIS INSURANCE CONTRACT HAS BEEN PLACED WITH AN INSURER NOT

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

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

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ISLAND INSURERS INSOLVENCY FUND. SHOULD THE INSURER BECOME SOLVENT,

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THE PROTECTION AND BENEFITS OF THE RHODE ISLAND INSURERS INSOLVENCY

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FUND ARE NOT AVAILABLE.

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

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sections of this act shall take effect upon passage.

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EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N   A C T

RELATING TO INSURANCE - CORPORATE GOVERNANCES

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     This act would require insurance companies to annually file with the director of business

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regulation a corporate governance disclosure form which contains a summary of the carriers

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structure, policies and practices. It would allow private flood insurance to be written in the

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surplus market without a due diligence affidavit.

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     Section 1 of this act would take effect on January 1, 2017. The remaining sections of this

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act would take effect upon passage.

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