§ 27-1-2.1. Corporate governance standards.
(a) The importance of good corporate governance is crucial in promoting integrity in an
insurance company's business practices and in maintaining public confidence and policyholder
trust. The size and ownership structure of a company often determines the corporate
governance standards employed by the company. All Rhode Island domestic insurers,
regardless of their size or ownership structure, shall establish the following minimum
corporate governance standards:
(1) The board of directors must be comprised of a minimum of five (5) and a maximum of
twenty-one (21) members.
(2) The board must meet at least two (2) times per year, however, four (4) times per year
is encouraged.
(3) The board must establish a written attendance policy.
(4) The board shall have authority to meet in executive session.
(5) There must be an audit committee established by and amongst the board of directors
for the purpose of overseeing the accounting and financial reporting processes of
the insurer and audits of the financial statement of the insurer. If no such committee
exists, the entire board of directors shall act as the audit committee.
(6) The board must review the minutes of the audit committee.
(7) The audit committee must meet at least two (2) times per year.
(8) There must be a written audit committee charter.
(9) At least one member of the audit committee must have knowledge of statutory accounting
principles or generally accepted accounting principles.
(10) The internal audit function should have a direct reporting relationship to the audit
committee for critical matters such as the audit plan, resources, and budgets.
(11) The audit committee must approve the selection of the independent auditor that performs
any audit required by the Rhode Island regulation governing annual audited financial
reports.
(12) The audit committee shall require the independent accountant that performs any audit
required by Rhode Island regulation governing annual audited financial reports, to
timely report to the audit committee in accordance with the requirements of Statement
of Auditing Standards No. 61, communications with audit committee, or its replacement,
including:
(i) All significant accounting policies and material permitted practices;
(ii) All material alternative treatments of financial information within statutory accounting
principles that have been discussed with management officials of the insurer, ramifications
of the use of the alternative disclosures and treatments, and the treatment preferred
by the accountant; and
(iii) Other material written communications between the accountant and the management of
the insurer, such as any management letter or schedule of unadjusted differences.
(13) There must be a written code of ethics covering directors and officers that includes
the insurer's conflict of interest policy.
(14) There should be a written policy encouraging employees to come forward with observations
of improprieties or other malfeasance.
(15) On or after July 1, 2008, no domestic insurer or any affiliate member of its holding
company system (as defined in § 27-35-1 et seq.) may extend or maintain credit, arrange for the extension of credit, or renew
an extension of credit in the form of a personal loan to or for any director or officer
of a domestic insurer. The terms and purpose of any such existing extensions of credit
made to any director or officer of a domestic insurer must be disclosed to the director.
For purposes of this subsection, benefits that are offered to directors or officers
as policyholders of a domestic insurer, or benefits that are offered to the general
public in the insurer's normal course of business, shall not be considered a violation
of this subsection.
(b) In addition to the standards enumerated in subsection (a) of this section, the following
corporate governance standards must be employed by all Rhode Island domestic mutual
insurance companies and all domestic insurance companies writing more than one hundred
million dollars ($100,000,000) in premium, in any jurisdiction, on a direct and/or
assumed basis, as determined at the end of the previous calendar year:
(1) The board must have an independent majority of members.
(2) The audit committee must have an independent majority of members.
(3) The audit committee must approve all related party transactions, which include transactions
between the company and its affiliates and those between the company and its officers
and directors. The company may establish materiality thresholds, however, they must
be clearly stated in its audit committee charter as required by subsection (a)(8),
but in no event shall the materiality thresholds exceed those established in chapter 35 of this title.
(c) For purposes of this section, an independent board or audit committee member is defined
as an individual: (1) who is not being compensated by the domestic insurer or any
company within its holding company system ("organization�), other than any reasonable
compensation and benefits for services as a director, and has not been compensated
within the past twelve (12) months including full-time and part-time compensation
as an employee or an independent contractor, except for reasonable compensation as
a director; (2) whose own compensation is not determined by individuals who are compensated
by the organization, except for reasonable compensation paid to the director; (3)
who does not receive material financial benefits (i.e., service contracts, grants,
or other payments) from the organization; or (4) who is not related to (as a spouse,
sibling, parent, or child) or the domestic partner of an individual compensated by
or who receives material financial benefits from the organization. Policyholders of
a domestic insurer may be considered independent providing they meet the requirements
as defined in this subsection.
(d) Any Rhode Island domestic insurer that does not currently employ one or more of the
standards enumerated in subsections (a) and (b) of this section, must submit a plan
of corrective action to the director for the director's approval. The director, at
the director's discretion, may waive any of the requirements in this section for a
period not exceeding thirty-six (36) months. The director's refusal to approve a plan
of corrective action after reviewing such plan of corrective action for a period of
sixty (60) days shall constitute a final order for purposes of the Rhode Island administrative
procedures act allowing the party to appeal to the superior court.
(e) Nothing contained in the company's bylaws shall conflict with the corporate governance
standards set forth in this act. Any amendments to a domestic insurance company's
bylaws shall be submitted in writing to the department.
(f) A domestic insurer that is a member of an insurance holding company system as defined
in chapter 35 of this title, is exempt from this section if it can demonstrate that it is, or is controlled by
an entity that either is required to be compliant with, or voluntarily is compliant
with, all of the following provisions of the Sarbanes-Oxley Act of 2002: (i) the preapproval
requirements of section 201 (section 10A(i) of the Securities Exchange Act of 1934);
(ii) the audit committee independence requirements of section 301 (section 10A(m)(3)
of the Securities Exchange Act of 1934); and (iii) the internal control over financial
reporting requirements of section 404 (Item 308 of SEC regulation S-K) — ("SOX Compliant
Entity�). If the department makes a determination, as a result of its statutory examination
or financial analysis, that the domestic insurer is not controlled by a SOX Compliant
entity or that the insurer's interests and affairs are not adequately considered and
evaluated by the SOX Compliant Entity, the domestic insurer must take steps to comply
with this act.
(g) A Rhode Island domestic insurer that is a wholly-owned subsidiary of another Rhode
Island domestic insurer that is compliant with the provisions of subsection (a), and
if applicable the requirements of subsection (b), shall be exempt from compliance
with any other requirements of this act.
(h) The requirements of this section, 27-1-2.1, shall not apply to entities regulated pursuant to chapters 19, 20, 20.1, 20.2, 20.3,
and 41 of this title and shall not supersede or replace any specific statutory corporate
governance standards otherwise applicable to domestic insurance companies.