NAIC to enforce corporate governance transparency model
The NAIC has adopted a Corporate Governance Annual Disclosure Model Act and supporting Model Regulation, providing a means for insurance regulators to receive additional information on the corporate governance practices of US insurers on an annual basis.
Under the requirements of the Model Act, US insurers will be required to provide a detailed narrative describing governance practices to their lead state or domestic regulator by June 1st of each year.
This narrative will be protected by strict confidentiality measures, included within the models to encourage insurers to be open and transparent in describing their governance practices to regulators. 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,” says 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.”
Key items required to be described within the 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 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 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, the actuarial function, and investment, reinsurance and business strategy decision-making processes.
“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,” adds Joseph Torti, III, Rhode Island deputy director and superintendent of insurance and banking, and chair of the NAIC Financial Condition Committee.