NAIC Corporate Governance Working Group Meeting Report: September 16

Sep 16, 2011


The National Association of Insurance Commissioners (“NAIC”) Corporate Governance Working Group (“Group”), part of the NAIC Executive Committee, met via teleconference today, September 16, 2011, to review a preliminary draft of U.S. regulatory corporate governance requirements.

After the Group approved minutes from a July 20, 2011 meeting, Chairman Andrew Stolfi, Chief of Staff and Special Counsel at the Illinois Department of Insurance, reviewed four key steps outlining the purpose of the Group’s activities.  These are to:

  • Compile a summary of existing corporate governance requirements found within NAIC/insurance-specific sources and non-NAIC/insurance-specific sources such as the Securities and Exchange Commission and stock exchanges;
  • Identify potential gaps in the existing corporate governance structure;
  • Compare the existing structure to insurance core principles; and
  • Resolve any differences in identified gaps and aforementioned comparison, and then take appropriate action to address the gaps.

Mr. Stolfi told Group members that their mission is to decide how they want to organize the corporate governance requirements and what level of detail they would like to see included.  The first version included preliminary drafts of existing NAIC and insurance-code specific corporate governance requirements.

Mr. Stolfli said the document could have been organized by Insurance Core Principles (“ICPs”), regulatory function, company life cycle or model law.  Instead, the document was organized so it was more U.S.-focused, apparently to avoid a repetition of ideas, he added.

It was explained that the idea behind the document was to use the U.S. Insurance Solvency Framework to document the U.S. system overall for purposes of explaining it internationally, and also use it as a tool domestically to better define the principles within the national solvency system in the U.S.

It was explained that this would be a good way to present the requirements without overlap.

Mr. Stolfi wanted to know what Group members thought about the draft.  Most agreed it was fine.  No one expressed strong opposition, but one interested party said the document was too complex to absorb in just a few days.

“It’s a very meaty, financial regulatory paper and I guess the question is, is it kind of going beyond corporate governance and getting into financial regulation generally?” Mr. Stolfi remarked.  “Business issues and corporate governance structuring issues are not necessarily the same.”

He said those issues will be addressed at a later date when the Group fills in more of the draft document.

Steven Johnson of Pennsylvania suggested the introduction could better explain how the international model is an authority-based model and that this one is an exception-based model.  Principles listed in the document need to be tied in more closely to the ICPs, he said.

“We could never go to a total authority base. The best thing we can do is create the road map very clearly to show our exception base does the same thing as the authority base,” he added.

Mr. Stolfi wondered whether explaining how each principal satisfies the ICPs would improve the document.  Mr. Johnson thought it would.

“Connect the dots, or the next time your review team comes on site, the paper will fail,” Mr. Johnson said.  “We are going to have to connect the dots . . . here’s the ICP and here’s where we believe our exception base, not authority base, covers that.”

Mr. Stolfi agreed the introduction section needed to be “beefed up.”  He wondered, however, if the roadmap of the ICPs should be included in a separate document.

Mr. Johnson said he was unsure.

Another participant on the call said he preferred discussion of ICPs to be included in a separate document.  He said the current document should cover only what is in U.S. corporate governance.

Mr. Stolfi told Group members they have up until the NAIC 2011 Fall National meeting in November to complete a comprehensive final draft.

In other action, the Group approved an amended project timeline with little discussion.

With no other business before the Group, the meeting was adjourned.


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