Before Jan. 1, 2020, all states will be required to enact the Model Corporate Governance Annual Disclosure Act and Regulation created by the NAIC. The CGAD requires each insurer (no exemptions) to implement and confirm in an annual disclosure its corporate governance structure, policies, and practices. This was intended so that regulators would understand the governance framework for insurers. The CGAD requirement applies to companies that are groups as well as those that are simply legal entities.
The NAIC adopted the Corporate Governance Annual Disclosure Model Act and Regulation in 2014. NAMIC was instrumental in ensuring that the model was to be a disclosure only and that no governance requirements were included in the model. NAMIC also ensured that the model not include a common assessment (scoring) methodology and that it be scaled for companies of all sizes and structures. Further, NAMIC ensured that the disclosure has strong confidentiality provisions.
NAMIC will continue to monitor the NAIC for any changes to the model that may turn the disclosure into requirements or attempt to score corporate governance frameworks. Regulators are expecting more board involvement in this new regulatory approach, and they now believe (right or wrong) that boards are an extension of the companies.
The disclosures are required to include the following information:
A description of the corporate governance framework and structure, including identification of significant committees, the rationale for the size of the board and its structure, the duties of board and committee members, and the role of the chief executives and the chairman of the board;
The policies and practices applicable to the board of directors and its committees including:
Identification of board member qualifications, and
Requirements for independent board members;
The policies and practices directing senior management, including significant compensation programs; and
The processes that the board uses to facilitate oversight of the critical risk areas and business activities, including those for board committees and those for senior management.
Additional information is required, as set forth in more detailed regulations. For example, reporting companies are expected to discuss how the experience and qualifications of board members meet the needs of the insurer, and to include information about the nomination process, diversification of membership, independence of directors, training of new directors, etc. Each year these disclosures are to be updated if needed and filed with the department of insurance. Similar details are set forth in the regulations regarding the senior management. The disclosure is to include information about the suitability of the management determined based on their background and experience. The disclosure should also provide details about the performance evaluation metrics for management, succession plans, and code of ethics. Finally, a significant description of the enterprise risk management process must be included. This applies to all companies even if they have already completed an Own Risk and Solvency Assessment, an Enterprise Risk Report, or other risk assessments with the department of insurance.
NAMIC does not oppose adoption of the CGAD Model Act in the states if the enactment at the state level mirrors the model act language and all confidentiality protections outlined in the model act are included without significant deviation. In addition, NAMIC opposes any regulatory tool developed by the NAIC that encourages uniformity and consistency in reviewing corporate governance practices, such as a common assessment methodology and/or a rating system for corporate governance.