DRAFT NAIC Corporate Governance Working Group Will Not Exempt Small Insurance Companies from Proposed Regulations
Apr 1, 2014
At its March 30, 2014 meeting in conjunction with the National Association of Insurance Commissioners (“NAIC”) Spring 2014 National Meeting, the NAIC Corporate Governance Working Group decided not to exempt small insurance companies from meeting certain requirements under proposed corporate governance regulations. The Working Group is currently crafting a Corporate Governance Annual Filing Model Act.
Specifically, the National Association of Mutual Insurance Companies (NAMIC) asked that companies writing less than $500 million in direct written and assumed premiums be exempted.
The agenda and materials from the Working Group’s March 30 meeting are attached in PDF format.
Following is coverage from A.M. Best’s BestWeek:
ORLANDO, Fla. – A National Association of Insurance Commissioners panel has rejected a request to exempt small insurance companies from meeting requirements in proposed corporate governance regulations.
The NAIC’s corporate governance working group turned down the request made by the National Association of Mutual Insurance Companies during the March 30 meeting at the NAIC’s Spring National Meeting in Orlando, Fla.
The corporate governance working group is crafting both a model law and the regulations to implement the model law with the hope of ultimate approval by the NAIC later this year. Neil Alldredge, NAMIC senior vice president, state and policy affairs, made the request to change a draft in the regulation under discussion.
Alldredge asked the working group to exempt companies that write less than $500 million in direct written and assumed premiums. He told Best’s News Service that NAMIC sought to exempt smaller companies because the requirements would create redundant work for both the companies and the regulators. Alldredge wanted the working group to either address the filing redundancies the new rules would create, or simply exempt them from the new rules. “Why add another thing for them to do?” he asked.
Committee Chairwoman Susan Donegan, Vermont Insurance Commissioner, said NAMIC’s request was rejected because regulators believe smaller companies have greater challenges understanding and complying with corporate governance. Larger companies, she said, have had much more experience in doing so.
Donegan said the model law is undergoing minor edits and that stakeholders generally agree with it. But work continues on the regulatory companion to the model law that NAMIC tried to change. The regulations began life as an insurance industry proposal followed by one offered by regulators that used part of industry’s suggestions (Best’s News Service, March 7, 2014).
Donegan said the latest version offered by New York was proving too prescriptive in some areas and that some requirements might be loosened. She said doing so would provide regulators with more flexibility to address redundancies. For instance, she said the panel might exempt insurers from putting some corporate governance information in documents such as annual reports if they are providing “substantially similar” information to regulators in other filings.
The fear that the regulation will create redundant filings for insurers also worries groups such as the Property Casualty Insurers Association of America. Steve Broadie, PCI’s vice president, financial policy, told Best’s News Service that efforts to reduce corporate governance filing redundancy would be positive for companies, regulators and ultimately consumers.
Adam Kerns, assistant general counsel at the American Insurance Association, said in a statement AIA believes a final agreement on the model act and regulation is near. “We look forward to continued cooperation with regulators to address the concerns regarding redundant filing requirements,” he said.
The exposure period for both the model law and the regulations runs through April 21. The working group is expected to move the model law and regulations in tandem during the coming weeks with the hope of having it approved during the NAIC Summer National Meetings this August in Louisville. However, Donegan said she is wary of making any promises, because differences in two promising prior attempts resulted in their being scrapped near completion.
Passage of the corporate governance model law would address a Federal Insurance Office recommendation made in its December report on insurance industry modernization. The FIO specifically asked states to “develop corporate governance principles that impose character and fitness expectations on directors and officers appropriate to the size and complexity of the insurer.”
(By Thomas Harman, associate editor, BestWeek: Tom.Harman@ambest.com)
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