|August 21, 2014|
Previously published on August 8, 2014
Models will allow for the annual collection of detailed information on insurers' corporate governance practices
The National Association of Insurance Commissioners ("NAIC") announced today, August 18, 2014, that it has adopted a Corporate Governance Annual Disclosure Model Act ("Model Act") and supporting Model Regulation, which are designed to provide a means for insurance regulators to receive additional information on the corporate governance practices of U.S. insurers on an annual basis.
Under the provisions of the Model Act, U.S. insurers will be required to provide a detailed narrative describing their governance practices to their lead state or domestic regulator by June 1st of each year. The narrative will be protected by strict confidentiality measures, which were included within the Model Act and Regulation to encourage insurers to be open and transparent in describing their governance practices to regulators. Insurers will be allowed some discretion in determining the level within their organizations at which to report their corporate governance practices, depending upon their structure and organization. The new disclosure requirements are expected to commence in 2016.
"The Corporate Governance Annual Disclosure Model Act represents nearly five years of thoughtful discussion and work regarding regulatory guidance that details best practices for the corporate governance of insurers," said Susan Donegan, Commissioner of the Vermont Department of Financial Regulation and Chair of the Corporate Governance Working Group. "This Model Act was developed to promote regulatory oversight, as well as protect the confidentiality of the insurer."
"Annual and transparent disclosure of corporate governance practices of insurers will ensure that state regulators have a comprehensive understanding of the corporate governance structure, policies and practices utilized by the insurer," said Joseph Torti, III, Rhode Island Deputy Director and Superintendent of Insurance and Banking, and Chair of the NAIC Financial Condition Committee, which oversees the work of the Corporate Governance Working Group.
Key items required to be described within the Model Corporate Governance Disclosure include:
- The insurer's corporate governance framework and structure, including duties and structure of the Board of Directors and its committees;
- The policies and practices of its Board of Directors and significant committees, including appointment practices, the frequency of meetings held and review procedures;
- The policies and practices directing an insurer's senior management, including a description of defined suitability standards, the insurer's code of conduct and ethics, performance evaluation and compensation practices, and succession planning; and
- The processes by which the insurer's Board of Directors, its committees and senior management ensure an appropriate level of oversight to the critical risk areas impacting the insurer's business activities, including risk management processes, actuarial function, investment, reinsurance and business strategy decision-making processes.
During yesterday's Corporate Governance Working Group meeting at the NAIC's 2014 Summer National Meeting in Louisville, Kentucky, regulators discussed potential redundancies that could be created through the adoption of an annual Corporate Governance Disclosure. As a result, they agreed to refer these issues to the NAIC's Blanks Working Group and the Financial Examiners Handbook Technical Group for consideration. In addition, the Working Group agreed to refer broader redundancy concerns related to the overall solvency-monitoring process to the NAIC's Financial Condition Committee for consideration.