(a) Each risk retention group seeking to be chartered and licensed in this state shall comply with the following governance standards at the time of licensure or, for a risk retention group chartered in this state prior to October 1, 2016, not later than October 1, 2017:

(1) (A) Each risk retention group shall be governed by a board of directors who are elected by the owners or members of such group. A majority of the board of directors shall be independent, as described in subparagraphs (D) and (E) of this subdivision.

(B) If a risk retention group is a reciprocal risk retention group, the attorney-in-fact acting as the agent or manager of such group shall be independent, as described in subparagraphs (D) and (E) of this subdivision, and comply with the governance standards set forth in this section.

(C) The members of any member advisory committees established by the board of directors of a risk retention group shall be independent, as described in subparagraphs (D) and (E) of this subdivision, and comply with the governance standards set forth in this section.

(D) (i) For the purposes of this section, no director shall qualify as independent unless the board of directors affirmatively determines that such director has no material relationship with such risk retention group. Any individual who is a direct or an indirect owner of or an insured in the risk retention group as described in subparagraph (E)(ii) of subdivision (12) of § 38a-250 or is an officer, director or employee of such an owner or insured, shall be deemed to be independent unless a different position or relationship of such owner, member, officer, director or employee constitutes a material relationship.

(ii) Each risk retention group shall disclose such determinations at least annually to the Insurance Commissioner.

(E) As used in this section, “material relationship” includes, but is not limited to:

(i) The receipt by an individual set forth in subparagraphs (A) to (C), inclusive, of this subdivision, such individual’s immediate family member or any business with which such individual is affiliated, from the risk retention group or a consultant to or service provider for such group, of compensation or payment in any one twelve-month period of five per cent or more of the risk retention group’s gross written premiums for such twelve-month period or two per cent of its surplus, whichever is greater. Such individual shall not be deemed to be independent for the purposes of this section until one year after such compensation or payment from such group falls below the threshold set forth in subparagraph (E)(i) of this subdivision;

(ii) The affiliation or employment in a professional capacity of a director or a director’s immediate family member with a present or former internal or external auditor of the risk retention group. Such director shall not be deemed to be independent for the purposes of this section until one year after the end of such affiliation or employment or the auditing relationship; and

(iii) The employment of a director or a director’s immediate family member, as an executive officer with another company at which any of the risk retention group’s current officers serve as members of such other company’s board of directors. Such director shall not be deemed independent for the purposes of this section until one year after the end of such employment or service.

(2) (A) No material contract between a risk retention group and a service provider shall include a term that exceeds five years. A contract is deemed to be material if the amount paid under such contract is five per cent or more of the risk retention group’s annual gross written premiums or two per cent of its surplus, whichever is greater. The board of directors shall approve by a majority vote any such contract or its renewal. The board of directors may terminate any such contract for cause at any time, provided any notice requirement included in such contract is satisfied.

(B) No service provider contract under which a material relationship would exist shall be entered into unless the risk retention group has submitted such contract as part of or as a revision to the risk retention group’s plan of operation and the commissioner approves such plan or revision pursuant to subsection (b) of § 38a-251.

(C) Any contract between a reciprocal risk retention group and a service provider shall be between such group and not the attorney-in-fact for such group.

(D) As used in this subsection, (i) “service provider” means a captive manager, an auditor, an accountant, an actuary, an investment advisor, an attorney, a managing general underwriter and any other party responsible for underwriting, determining premium rates, collecting premiums, adjusting and settling claims and preparing financial statements. An attorney under this subparagraph does not include defense counsel retained by a risk retention group to defend claims unless the attorneys’ fees for such counsel are material, as described in subparagraph (A) of this subdivision, and (ii) “captive manager” means an individual or entity contracted by a captive insurance company, as defined in § 38a-91aa, to manage such company’s affairs.

(3) The board of directors of each risk retention group shall adopt a written policy in its plan of operation or a feasibility study that requires the board of directors to: (A) Ensure that all owners and members of such group receive evidence of ownership interest; (B) develop a set of governance standards applicable to such group; (C) oversee the evaluation of such group’s management, including, but not limited to, the performance of the captive manager, managing general underwriter or other parties responsible for underwriting, determining premium rates, collecting premiums, adjusting and settling claims and preparing financial statements; (D) review and approve the amount to be paid to a service provider under a material contract; and (E) review and approve at least annually (i) such group’s goals and objectives relative to the compensation of its officers and service providers, (ii) such officers’ and service providers’ performances in light of such goals and objectives, and (iii) the continued engagement of such officers and service providers.

(4) (A) Each risk retention group shall establish an audit committee composed of at least three independent members of the board of directors. The audit committee may invite a nonindependent member of the board of directors to participate in such committee’s activities, but such nonindependent member shall not be a member of such committee.

(B) The audit committee shall adopt a written charter that defines the committee’s purposes that shall, at a minimum, be to: (i) Assist the board of directors with oversight of the integrity of financial statements, compliance with legal and regulatory requirements and the qualifications, independence and performance of any auditor or actuary contracted with by the risk retention group; (ii) discuss the annual audited financial statements and the quarterly financial statements with members of the management of the risk retention group; (iii) discuss the annual audited financial statements and, if advisable, the quarterly financial statements, with such group’s external auditor; (iv) discuss policies with respect to such group’s risk assessment and risk management; (v) meet separately and periodically, directly or through a designated member of the committee, with members of the management of the risk retention group and with such group’s external auditor; (vi) review with such group’s external auditor any audit problems or difficulties and the response from members of the management of such group; (vii) set clear hiring policies for the risk retention group for the hiring of employees of or former employees of such group’s external auditor; (viii) require such group’s external auditor to rotate or coordinate the lead auditor having primary responsibility for such group’s audit and the auditor responsible for reviewing such group’s audit so that no individual performs audit services for such group for more than five consecutive years; and (ix) report on its activities regularly to the risk retention group’s board of directors.

(C) The commissioner may waive the requirement to establish an audit committee if a risk retention group demonstrates to the commissioner that it is impracticable to do so and such group’s board of directors is itself able to accomplish the purposes of such committee, as set forth in subparagraph (B) of this subdivision.

(5) (A) The board of directors of a risk retention group shall adopt governance standards for such group and a code of business conduct and ethics for the officers, directors and employees of such group. Such code shall include, but not be limited to, standards regarding (i) conflicts of interest, (ii) the matters covered under the corporate opportunities doctrine in the risk retention group’s state of domicile, (iii) confidentiality, (iv) fair dealing, (v) the protection and proper use of the assets of such group, (vi) compliance with all laws, rules, regulations and requirements applicable to such group, (vii) the required reporting of any illegal or unethical behavior that affects the operations of the risk retention group, and (viii) any waivers of such code for officers or directors.

(B) The board of directors shall disclose the standards and code set forth in subparagraph (A) of this subdivision by posting such standards and code on the risk retention group’s Internet web site or by other means. The board of directors shall provide to members and insureds, upon request, additional information that includes (i) the process by which members of the board of directors are elected, (ii) the qualifications required to be a member of the board of directors, (iii) the responsibilities of the board of directors, (iv) the access of a member of the board of directors to members of the management of the risk retention group and to independent advisors, (v) the compensation for serving as a member of the board of directors, (vi) the orientation process for and continuing education requirements or opportunities for a member of the board of directors, (vii) the policies and procedures followed by the risk retention group for management succession, and (viii) the policies and procedures followed by the risk retention group for the annual performance evaluation of the members of the board of directors.

(6) The captive manager, president or chief executive officer of a risk retention group shall notify the commissioner promptly in writing if such manager, president or chief executive officer becomes aware of any material noncompliance with the provisions of this section.

(b) The commissioner may examine any documents or materials relating to the requirements set forth in this section for a risk retention group chartered and licensed in this state.