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Special Bonus Guest Blog – What You Should Know About NAIC’s Corporate Governance Disclosure Regulation Mandate

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Andrea Litewski Manager, Education American Fraternal Alliance

Good morning and happy Friday! I am taking this opportunity to grab the blogging reins from Joe to give you a brief preview of one of the exciting and important workshops that will be presented at the upcoming 2015 Alliance Annual Meeting in Indianapolis. This session will cover a topic that should be of interest to you all; the NAIC’s Corporate Governance Annual Disclosure Models Act (CGAD).  Last summer, the NAIC adopted a Corporate Governance Annual Disclosure Model Act and supporting Model Regulation, which provides a way for insurance regulators to receive, on an annual basis, additional information on the corporate governance practices of U.S. insurers.

Under the requirements of the CGAD, U.S. 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. The narrative will be protected by strict confidentiality measures, which were included to encourage insurers to be open and transparent in describing their governance practices to regulators. Insurers will be allowed some discretion in determining at what level within the organization to report their corporate governance practices, depending upon their structure and organization. The new disclosure requirements will begin in 2016.

According to Susan Donegan, Commissioner of the Vermont Department of Financial Regulation and Chair of the Corporate Governance Working Group, “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. This model act was developed to promote regulatory oversight as well as protect the confidentiality of the insurer.”

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C.J. Rathbun, Senior Consultant at First Consulting & Administration, Inc.

In order to help you prepare to comply with this new regulation, the Alliance has planned a workshop which will be presented twice at the upcoming Annual Meeting. Our speaker for this session will be C.J. Rathbun, Senior Consultant at First Consulting & Administration, Inc. We recently sat down with C.J. to ask her to provide a preview of the kind of issues that the session will cover. Here’s the result…

AL) Aren’t fraternals exempt from filing the CGAD report? If not, do they only have to file it with their state of domicile, or will it also need to be filed with the regulators in all states they are licensed and in which they operate? When is the first filing with NAIC due?

CJR) The requirements for Corporate Governance Reports apply to all insurers, small to large, fraternal to mutual to public companies. We have yet to see if states other than domiciliary states that will ask for copies of the report, so we will see. Depending on when your domiciliary state adopts the model (and all states are expected to do so in the next 18 months or so), the model states June 1 is the annual due date. The first reports were due in June 2016.

AL) What are regulators hoping to learn from the CGAD filings of insurers?

C.J.R) Because their only information on the true financial stability of a company has been the Financial Examinations, and even if those are done regularly by a state, it isn’t more than once every three to five years, they want an annual report that gives them a better sense of that stability on an ongoing basis.

AL) What type of governance structure are regulators looking to see from the CGAD report?

C.J.R) The structure exactly matches the ORSA ERM structure requirement – suited to the size and structure of your company – even though you may not have been required to submit an ORSA report.

AL) Do the NAIC CGAD models address what type of board structure an insurer should maintain, and does it provide guidance as to what qualities/characteristics a board member should possess?

C.J.R) This is one of the key provisions of the CGAD that requires the Board as a whole to be sufficiently experienced and of the integrity to effectively run an insurance company. While the model does not go into more detail, the drafts will inform us of what the regulators were intending to prove the experience and integrity of the Board members.

I want to thank C.J. for taking the time to give us a glimpse of what we can expect to learn in her session at this Annual Meeting, held September 10-12, 2015, in convenient Indianapolis. You still have time to register for the event which will include this and six other great, timely workshops, great speakers and hundreds of your fraternal colleagues from across the country. Also, if you register today before midnight you still have time to save $100 on the price of your registration. Click here for all the details.

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I look forward to seeing all of you in Indy!

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