{"data":{"id":"us-ky/krs-304.45-032","jurisdiction":"us-ky","citation":"KRS 304.45-032","heading":"Board of directors of risk retention group -- Contracts with service","body":"provider -- Audit committee composed of independent directors -- Governance\nstandards -- Code of business conduct and ethics -- Notification of\nnoncompliance.\n(1) (a) 1. The board of directors of a risk retention group shall have a majority of\nindependent directors.\n2. No director shall qualify as independent unless the board of directors\naffirmatively determines that the director has no material relationship\nwith the risk r etention group. Each risk retention group shall disclose\nthese determinations to the commissioner at least annually.\n3. No director shall be deemed to have a material relationship with the risk\nretention group solely because the director is a direct or ind irect owner\nor member of the risk retention group or is an officer, director, or\nemployee of an owner or member of the risk retention group.\n(b) If the risk retention group is a reciprocal insurer, then an attorney -in-fact shall\nbe required to adhere to th e same standards regarding independence of\noperation and governance as imposed on the risk retention group's board of\ndirectors pursuant to this section. Unless prohibited under state law, service\nproviders of a reciprocal risk retention group shall contra ct with the risk\nretention group and not the attorney-in-fact.\n(c) No person shall qualify as independent until one (1) year after the end of a\nmaterial relationship. For material relationships established pursuant to KRS\n304.45-020(9)(a), no person shall qualify as independent until one (1) year\nafter the compensation or payment of any other item of value from the risk\nretention group or a consultant or service provider to the risk retention group\nfalls below the threshold established in that subsection.\n(2) (a) No contract with a service provider that creates or results in a material\nrelationship shall be entered into by a risk retention group unless the risk\nretention group has provided written notice to the commissioner of its\nintention to enter into the  contract at least thirty (30) days prior to the\nexecution of the contract and the commissioner has not disapproved the\nproposed contract within the notice period.\n(b) The term of any material service provider contract with a risk retention group\nshall not exceed five (5) years.\n(c) Any material service provider contract, or its renewal, shall require the\napproval of the majority of a risk retention group's independent directors. At\nany time, the risk retention group's board of directors has the right to terminate\nany service provider contract for cause after providing adequate notice as\ndefined in the contract.\n(d) For the purposes of this subsection, \"service provider\" includes:\n1. Captive managers;\n2. Auditors;\n3. Accountants;\n4. Actuaries;\n5. Investment advisors;\n6. Lawyers other than defense counsel retained by the risk retention group\nto defend claims, unless the amount of fees paid to the defense counsel\ncreates or results in a material relationship;\n7. Managing general underwriters; and\n8. Other parties responsible for underwriting, determining rates, collecting\npremiums, adjusting and settling claims, or preparing financial\nstatements.\n(3) A risk retention group's board of directors shall adopt a written policy in its plan of\noperation that requires the board to:\n(a) Ensure that all owners of the risk retention group receive evidence of\nownership interest;\n(b) Develop a set of corporate governance standards applicable to the risk\nretention group that satisfies, at a minimum, the requirements of this section;\n(c) Oversee the evaluation of the risk retention group's management, including\nbut not limited to the performance of the captive manager, managing general\nunderwriter, or other party or parties responsible for underwriting,\ndetermining ra tes, collecting premiums, adjusting or settling claims, or\npreparing financial statements;\n(d) Review and approve the amount to be paid for all material service providers;\nand\n(e) Review and approve, at least annually:\n1. The goals and objectives relevant to the risk retention group's\ncompensation of officers and service providers;\n2. The officers' and service providers' performance in light of those goals\nand objectives; and\n3. The continued engagement of the officers and material service\nproviders.\n(4) (a) A risk retention group shall have an audit committee composed of at least\nthree (3) independent directors. Non -independent directors may participate in\nthe activities of the audit committee if invited by the committee members, but\ncannot be members of the committee.\n(b) The audit committee shall have a written charter that defines the committee's\npurpose, which, at a minimum, shall include the following:\n1. Assist board oversight of:\na. The integrity of the financial statements;\nb. Compliance with legal and regulatory requirements; and\nc. The qualification, independence, and performance of the\nindependent auditor and actuary;\n2. Discuss the annual audited financial statements and the quarterly\nfinancial statements with management;\n3. Discuss the annual aud ited financial statements and, if advisable, the\nquarterly financial statements with its independent auditors;\n4. Discuss policies with respect to risk assessment and risk management;\n5. Meet separately and periodically, either directly or through a designated\nrepresentative of the committee, with management and independent\nauditors;\n6. Review with the independent auditors any audit problems or difficulties\nand management's response;\n7. Set clear hiring policies regarding the hiring of employees or former\nemployees of the independent auditor;\n8. Require external auditors to rotate the lead or coordinating audit partner\nhaving primary responsibility for the risk retention group's audit as we ll\nas the audit partner responsible for reviewing that audit so that neither\nindividual performs audit services for more than five (5) consecutive\nfiscal years; and\n9. Report regularly to the board of directors.\n(c) The commissioner may waive the requirement to establish an audit committee\ncomposed of independent directors if the risk retention group demonstrates to\nthe commissioner that:\n1. It is impracticable to do so; and\n2. The risk retention group's board of directors is otherwise capable of\naccomplishing the purposes of an audit committee.\n(5) (a) The governance standards adopted by the board of directors pursuant to\nsubsection (3)(b) of this section shall include:\n1. The process by which the directors are elected by the owners;\n2. Director qualification standards;\n3. Director responsibilities;\n4. Director access to management and, as necessary and appropriate,\nindependent advisors;\n5. Director compensation;\n6. Director orientation and continuing education;\n7. The policies and procedures for management succession;\n8. The policies and procedures for annual performance evaluation of the\nboard; and\n9. A code of business conduct and ethics for directors, officers, and\nemployees.\n(b) The board of directors shall make the governance standards required by this\nsection available through electronic or other means and provide the\ninformation to the risk retention group's members upon request.\n(6) (a) The code of business conduct and ethics for directors, officers, and employees\nrequired by subsection (5) of this section shall address the following topics:\n1. Conflicts of interest;\n2. Matters covered under the corporate opportunities doctrine under the\nstate of domicile;\n3. Confidentiality;\n4. Fair dealing;\n5. Protection and proper use of risk retention group assets;\n6. Compliance with all applicable laws, rules, and regulations; and\n7. Requiring the reporting of any illegal or unethical behavior which affects\nthe operation of the risk retention group.\n(b) Any waivers of the code for directors or executive officers shall be promptly\ndisclosed to the board of directors.\n(7) The captive manager, president, or chief executive officer of the risk retention\ngroup shall promptly notify the commissioner in writing if he or she becomes aware\nof any material noncompliance with any of the provisions of this section.","path":[],"source_url":"https://apps.legislature.ky.gov/law/statutes/statute.aspx?id=47094","current_through":"Includes enactments through the 2026 Regular Session","vintage":"09/05/2026","retrieved_at":"2026-09-05T20:57:59Z","sha256":"b9ddaf55b41a6d17f642813ddaa848a6576be67314301f401cbab3f69000db91","source_id":"us-ky","stale":false,"prev":"us-ky/krs-304.45-030","next":"us-ky/krs-304.45-040"},"notice":"GroundRules: Original legal text. Not legal advice."}