The NAIC's Executive (EX) Committee is seeking comments on proposed changes to its Model Insurance Holding Company System Regulatory Act (the Act). If the NAIC approves the proposed changes, each state will have to adopt the revisions in order to maintain its NAIC accreditation. Comments are due by November 22, 2010.
Insurers and their affiliates will want to stay on top of these changes and the potential for increased oversight under the Act. The changes would significantly increase potential regulatory oversight of insurance holding company systems in the areas of corporate governance, duties of an insurer's board of directors, regulators' access to records of affiliates of insurers and the confidentiality of information submitted pursuant to the Act.
The proposed changes to the Act include:
- A controlling person would be required to file with the commissioner notice of a proposed divestiture of a domestic insurer at least 30 days prior to the cessation of control. The commissioner would then have discretion to determine whether filing and approval of such transaction will be required.
- An insurer would need to include the following in its annual registration statement (Form B):
- An annual report identifying the material risks within the insurance holding company system that could pose enterprise risk to the insurer.
- If requested by the commissioner, financial statements of all affiliates within the holding company system.
- Statements that the insurer's board of directors oversees corporate governance and internal controls and that the insurer's officers or senior management have approved, implemented and continue to maintain and monitor corporate governance and internal control procedures.
- Additional requirements for the filing of affiliate transactions involving the insurer (Form D), including that (a) agreements for cost sharing services and management must include such provisions as required by rule and regulation issued by the commissioner and (b) any notice for amendments or modifications to affiliate agreements must include the reasons for the change and the financial impact on the domestic insurer. In addition, informal notice would need to be given within 30 days after the termination of a previously filed agreement.
- The insurance department would have expanded examination powers and access to books and records of the insurer and its affiliates relating to the financial condition of the insurer and the enterprise risk posed to the insurer by the ultimate controlling party, any affiliate or the insurance holding company system on a consolidated basis.
- A new section on "supervisory colleges" that would give the commissioner the power to participate in a supervisory college for any domestic insurer that is part of an insurance holding company system with international operations in order to determine compliance with the Act. The powers of the commissioner with respect to supervisory colleges would include establishing a crisis management plan. The insurer would be required to pay the reasonable expenses of the commissioner's participation in a supervisory college, including reasonable travel expenses.