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Corporate Governance and Risk Management. Current Practices and Ongoing Developments in the U.S . Commissioner Jim Donelon Louisiana Department of Insurance. How is CG currently required of U.S. insurers?. Outside of Insurance Regulation: General Corporate Law Primarily at the State Level

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corporate governance and risk management

Corporate Governance and Risk Management

Current Practices and Ongoing Developments in the U.S.

Commissioner Jim Donelon

Louisiana Department of Insurance

how is cg currently required of u s insurers
How is CG currently required of U.S. insurers?

Outside of Insurance Regulation:

  • General Corporate Law
    • Primarily at the State Level
      • Generally enforced by the State’s Attorney General
        • Board structure
        • Duties
  • Case Law
    • Primarily at the State Level
      • Court rulings on duties, liability, negligence
how is cg currently required of u s insurers1
How is CG currently required of U.S. insurers?

Outside of Insurance Regulation:

  • Requirements enforced by the SEC for publicly-held companies
    • Securities Acts of 1933 and 1934
      • Broad governance and reporting requirements
    • Sarbanes-Oxley Act of 2002
      • Audit Committee independence and attestation regarding internal control over financial reporting
    • Other new requirements
      • Board’s Role in Remuneration and Risk Management
      • Dodd/Frank
how is cg currently required of u s insurers2
How is CG currently required of U.S. insurers?

Outside of Insurance Regulation:

  • Stock Exchange Listing Requirements
    • NYSE, NASDAQ
  • 18 U.S.C. § 1033-1034
    • Bars those convicted of criminal acts from the business of insurance
  • IRS Rules
    • Apply to not-for-profit insurers
how is cg currently required of u s insurers3
How is CG currently required of U.S. insurers?

Within Insurance Regulation:

  • Annual Financial Reporting Model Regulation (NAIC #205)
    • Audit Committee Independence
    • Internal Control over Financial Reporting
  • Other Laws
    • Holding Company Models (#440 & #450)
    • Hazardous Financial Condition Model (#385)
  • Required Reporting and Disclosures
    • Annual Statement and Supplemental Filings
    • Audit Report and Actuarial Report
how is cg currently reviewed by u s regulators
How is CG currently reviewed by U.S. regulators?

Within Insurance Regulation:

  • Company Licensing
    • Review CG information before license is granted
      • Biographical Affidavits
      • Criminal Background Checks
      • Plan of Operations
    • License denied if information is incomplete or inappropriate
how is cg currently reviewed by u s regulators1
How is CG currently reviewed by U.S. regulators?

Within Insurance Regulation:

  • Financial Analysis and Reporting
    • Code of Conduct
    • Management’s Report of Internal Controls
    • Supplemental Compensation Exhibit
    • Information on Risk Management
      • Form B filing
      • Actuarial report
      • MD&A
how is cg currently reviewed by u s regulators2
How is CG currently reviewed by U.S. regulators?

Within Insurance Regulation:

  • Financial Examination
    • Exhibit M of Financial Condition Examiners Handbook
      • Onsite review of corporate governance and risk management.
      • Interviews of Directors and Senior Management
      • Overall CG Assessment
what changes are coming
What changes are coming?
  • Corporate Governance (E) Working Group
    • Part of a broader Solvency Modernization Initiative
    • Considering changes to improve CG practices and regulator assessment
      • 2009 FSAP Recommendations
        • More explicit standards/guidance
        • Clarifying authority over CG matters
what changes are coming1
What changes are coming?
  • Corporate Governance (E) Working Group
    • Considering changes to comply with new standards in ICP 7 and ICP 8
      • Requiring additional disclosures regarding corporate governance and remuneration processes
      • Requiring insurers to maintain internal audit and compliance functions
what changes are coming2
What changes are coming?
  • Corporate Governance (E) Working Group
    • Project Plan includes:
      • Study of international standards (Completed)
      • Documentation of current practices (Completed)
      • Identification of potential areas for improvement (Ongoing)
      • Development and adoption of additional standards/guidance (Ongoing)
what changes are coming3
What changes are coming?
  • Group Solvency Issues (E) Working Group
    • Considering changes to comply with new standards in ICP 16
      • Requiring insurers to maintain a risk management function
      • Requiring large insurers to perform and submit an Own Risk and Solvency Assessment (ORSA) on a regular basis