02-31-165 Me. Code R. § 4

Current through 2024-46, November 13, 2024

Section 31-165-4 - Corporate Governance and Operational Standards for Domestic RRGs

All RRGs domiciled and licensed in this State shall comply with the following corporate governance and operational standards.

1.Board of Directors

A. The RRG's board of directors shall have a majority of independent directors. A director does not qualify as independent unless the board affirmatively determines that the director has no material relationship with the RRG. The RRG shall review its determinations of independence and disclose them to the Superintendent at least annually.

(1) A director has a material relationship with the RRG if the director, an immediate family member, or any business with which the director is affiliated has received compensation or other valuable consideration from the RRG or from any consultant or service provider to the RRG, during any consecutive 12-month period, beginning within the preceding 24 months, that is greater than or equal to 5% of the RRG's gross written premium or 2% of its surplus, as measured at the end of any fiscal quarter ending within that 12-month period.

(2) A director has a material relationship with the RRG if the director or animmediate family member is, or has been within the past year, affiliated with or employed in a professional capacity by a present or formerinternal or external auditor of the RRG.

(3) A director has a material relationship with the RRG if the director or an immediate family member is, or has been within the past year, employed as anexecutive officer of a business entity whose board of directors or management includes any of the RRG's current executives.

(4) The relationships described in Subparagraphs (1) through (3) are examples, not an exhaustive list. The board shall regard any relationship that would give a reasonable person comparable or greater concerns about the director's independence as a material relationship.

(5) Membership in the RRG, direct or indirect ownership of a member of the RRG, or service as an employee, director, or officer of a member of the RRG or the direct or indirect parent of a member of the RRG, is not considered a material relationship with the RRG and therefore does not, without more, disqualify someone with such a relationship with a member of the RRG from serving as an independent director of the RRG.

B. If an RRG is not organized as a stock or mutual insurance corporation, the term "board of directors" shall refer to its managers, subscribers' advisory committee, or similar governing body. If an organization comprising the members of the RRG is the sole owner of the RRG and the Superintendent determines that the parent organization's board possesses and exercises effective control over the RRG, then the board of directors of the parent organization shall be considered the board of directors of the RRG for purposes of this Section; otherwise, both boards of directors are subject to all applicable requirements of this Section.

C. If the RRG is a reciprocal insurer, its attorney-in-fact shall adhere to the same standards regarding independence of operation and governance as imposed on the RRG's subscribers' advisory committee under this Section. The RRG's attorney-in-fact may not:

(1) Contract directly, rather than on behalf of the RRG, with any service provider for services to the RRG; or

(2) Recruit, negotiate with, or make the decision to engage any service provider with which the attorney-in-fact has a material relationship.

2.Service Provider Contracts. The term of a material service provider contract with the RRG shall not exceed 5 years. Any such contract, or its renewal, shall require the approval of the majority of the RRG's independent directors. The board shall have the right to terminate any service provider, audit, or actuarial contracts at any time for cause after providing adequate notice as reasonably defined in the contract.

A. Service providers include captive managers, auditors, accountants, actuaries, investment advisors, legal service providers, managing general underwriters, and any other persons or entities responsible for underwriting, determination of rates, collection of premium, adjusting and settling claims, or the preparation of financial statements.

B. A service provider contract is material if the amount to be paid for the contract is greater than or equal to 5% of the RRG's annual gross written premium or 2% of its surplus, whichever is greater.

C. A lawyer retained by the RRG to defend insurance claims is not considered the RRG's legal service provider unless the lawyer also provides other legal services to the RRG, or the lawyer has received material levels of compensation for claims defense during three of the past five calendar years.

D. No material service provider contract may take effect unless the RRG has notified the Superintendent in writing of its intention to enter into the contract at least one month before the requested effective date and the Superintendent has not disapproved it within the review period.

3.Plan of Operation.A domestic RRG offering insurance in any jurisdiction shall have in force, and shall adhere to, a plan of operation, adopted by the board and approved by the Superintendent, that includes all the elements specified in 24-A M.R.S.A. §6093(8) and satisfies the requirements of this Subsection. The RRG shall file any material amendments or revisions to the plan of operation with the Superintendent within ten days after their adoption. The plan of operation shall obligate the board to:

A. Discharge its duties with the care, skill, prudence, and diligence of prudent directors acting in a similar enterprise and purpose;

B. Ensure that all insured members of the RRG receive evidence of ownership interest in the RRG or its parent organization;

C. Ensure that the RRG's management is accountable for the RRG's compliance with the plan of operation and with applicable law, including the obligation to write only insurance to cover liabilities, incurred by its members, of the kinds described in 24-A M.R.S.A. §6093(6) and 15 U.S.C. § 3901(a)(2);

D. Develop a set of governance standards for the RRG;

E. Oversee the evaluation of the RRG's management, including but not limited to the performance of any captive manager, managing general underwriter, or other party or parties responsible for underwriting, determination of rates, collection of premium, adjusting or settling claims, or the preparation of financial statements;

F. Review and approve the amount to be paid for all material service providers; and

G. Review and approve, at least annually:

(1) The RRG's goals and objectives, its expectations for the performance of its officers and service providers in meeting those goals and objectives, and a management compensation plan consistent with those expectations;

(2) The officers' and service providers' performance in light of those goals and objectives; and,

(3) The continued retention of the officers and material service providers in light of their performance reviews.

4.Governance Standards.The board shall adopt and adhere to governance standards, shall post them on the RRG's website or disclose them through other means the board determines to be reasonable and effective, and shall provide copies to the RRG's members on request. The governance standards shall include:

A. A process by which the directors are elected by the RRG's insured members;

B. Director qualification standards;

C. Director responsibilities;

D. Director access to management and, as necessary and appropriate, independent advisors;

E. Director compensation;

F. Director orientation and continuing education;

G. Policies and procedures for management succession; and

H. Policies and procedures for annual performance evaluation of the board.

5.Business Conduct and Ethics.The board shall adopt and disclose a code of business conduct and ethics for directors, officers, and employees. If the code contains any waiver provisions, any waivers that are granted shall be promptly disclosed to all directors. The code shall include the following topics:

A. Conflicts of interest;

B. Matters covered under this State's corporate opportunities doctrine;

C. Confidentiality;

D. Fair dealing;

E. Protection and proper use of RRG assets;

F. Compliance with all applicable law; and

G. Requirements to report any illegal or unethical behavior that affects the operation of the RRG.

6.Reporting Noncompliance.The president or chief executive officer of the RRG, and any captive manager or other service provider performing executive functions, shall promptly notify the Superintendent in writing if any of them becomes aware of any material noncompliance with the requirements of this Section or standards adopted by the RRG pursuant to this Section.

7.Transition.All domestic RRGs currently doing business shall come into full compliance with this Section no later than January 1, 2015, or such reasonable later date as the Superintendent may approve at the request of the RRG for good cause shown. To the extent that they attain compliance or substantial compliance with any provisions of this section before that date, they shall maintain that level of compliance for the remainder of the transition period.

02-31 C.M.R. ch. 165, § 4