NAIC Adopts Corporate Governance Annual Disclosure Models – What All Insurers Need To Know

NAIC Adopts Corporate Governance Annual Disclosure Models – What All Insurers Need To Know

Summary

Insurers should be preparing now to comply with a significant new annual filing requirement on corporate governance.  Understanding the type and scope of information that must be filed is critical to preparing for this new requirement.  In addition, adopting and implementing changes to current governance structures and practices may be advisable for some insurers to align more closely with recognized “best practices” principles.   

The NAIC formally adopted the Corporate Governance Annual Disclosure Model Act and corresponding Model Regulations (“CGAD”) at its Fall National Meeting.  Adoption of CGAD is the culmination of nearly five years of efforts by the NAIC to address concerns over the perceived lack of effective corporate governance practices and Board and senior management oversight of critical risk areas as part of the “lessons learned” from the recent financial crisis.  Beginning in 2016, the new requirement is intended to give U.S. regulators insight into the governance framework and practices of all U.S. insurers.

Under CGAD, detailed narrative and documentation must be provided under four key areas:

  • Governance framework and structure (including rationale for Board size and structure and discussion of roles of the CEO & Board Chairman).
  • Policies and practices of the Board and Board Committees (including discussion of how the qualifications, expertise and experience of Board members meet the needs of the insurer/insurer group, how an appropriate amount of independence is maintained, number of and attendance at meetings, and processes to evaluate and improve performance).
  • Policies and practices for directing senior management (including a description of suitability standards and processes for performance evaluation and corrective action as well as elements of compensation programs).
  • Oversight of critical risk areas (including a description of processes to ensure effective oversight and reporting).

While future Saul Ewing publications and programs will provide more detail on CGAD requirements and regulator expectations, several things are important to know now:

  1. There are no exemptions from the reporting requirement – CGAD applies to all insurers – even small insurers, fraternals and standalone mutuals that may be exempt from other recently adopted requirements (like ORSA, Enterprise Risk Reporting and the new internal audit function requirements).
  2. While CGAD is not intended to impose corporate governance standards and internal procedures beyond those that are already required by state law, the information that must be provided goes far beyond a mere disclosure of governance structure and documentation.  It also must include information on the rationale and suitability of the governance framework, processes, practices and personnel to the insurer/insurer group’s needs.  

To the extent an insurer or insurer group has not recently analyzed the appropriateness and effectiveness of its corporate governance structure and practices, the time to do so is now and not when the filing deadline is imminent.  While the analysis will assist in preparing for CGAD, it will also allow for proactive implementation of procedures that are more closely aligned to “best practices” principles and standards identified by the NAIC as part of its deliberations on CGAD.

For questions on CGAD requirement, please contact Fran Roggenbaum at 717.257.7526 / froggenbaum@saul.com or Jeremy Heinnickel at 717.257.7575 / jheinnickel@saul.com – and watch for future Saul Ewing Alerts and announcements on sponsored programs on CGAD.

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