On August 17, 2014, the National Association of Insurance Commissioners’ (“NAIC”) Financial Condition (E) Committee finalized a Corporate Governance Annual Disclosure Model Act and supporting Model Regulation (the “Corporate Governance Model Law and Regulation”) after nearly five years of discussion. This multi-year project was part of the NAIC’s Solvency Modernization Initiative (“SMI”), which included the formation of the Corporate Governance (E)Working Group (“CGWG”) “to study and compare existing governance requirements for US insurers to established best practices, international standards and US regulatory needs.”
The Corporate Governance Model Law and Regulation, if adopted by the NAIC Executive Committee and Plenary on November 18, 2014, will provide insurance regulators a means to collect information on the corporate governance practices of US insurers on an annual basis. The information collected will be accorded confidential treatment to the extent that it contains “confidential and sensitive information related to an insurer or insurance group’s internal operations and proprietary and trade secret information which, if made public, could potentially cause the insurer or insurance group competitive harm or disadvantage.” Under the requirements of the Corporate Governance Model Law and Regulation, domestic insurers will be required to submit a Corporate Governance Annual Disclosure (“CGAD”) no later than June 1 of each year.
Some of the key items required to be included in the CGAD include:
- Corporate governance framework and structure including duties and structure of the board of directors and its significant committees, as well as a discussion of the roles of chief executive officer and chairman of the board;
- The policies and practices of the board of directors and its significant committees, including appointment practices, the frequency of meetings held and review procedures;
- The policies and practices for directing senior management, including a description of suitability standards, the insurer’s code of business conduct and ethics, processes for performance evaluation, compensation and corrective action, and plans for succession; and
- The processes by which the 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.
The new disclosure requirements are expected to apply beginning in 2016, and the CGWG intends to recommend that state adoption of the Corporate Governance Model Law and Regulation be made an NAIC accreditation standard.