Effective July 1, 2014, Iowa moves forward in adopting the recent changes to the NAIC Model Holding Company laws by amending the Iowa Holding Company Act, Iowa Code Chapter 521A. Amended Chapter 521A now includes the concept of "enterprise risk," which is defined as "an activity or event involving affiliates of an insurer that could have a material adverse effect on the insurer or the insurer's holding company system." Amended Chapter 521A also adopts the "supervisory college" as a means to more adequately monitor domestic insurers that are part of a holding company system with international operations. Though these amendments closely mirror the Model and, therefore, include few surprises, insurers domiciled in Iowa (and their ultimate controlling persons) should review the amended Chapter and understand its implications.
One notable change in amended Chapter 521A is the annual enterprise risk report (ERR) requirement. Pursuant to new Iowa Code Section 521A.4(11A), the ultimate controlling person of an Iowa domestic insurer shall file an annual ERR identifying "the material risks within the insurance holding company system that could pose enterprise risk to the insurer." The annual ERR is to be filed with the "lead state" of the insurance holding company system. The ERR will most likely be required to be provided in the form approved and adopted by the NAIC – the Form F. Iowa is expected to approve this format and provide additional guidance on the ERR in the form of amended holding company regulations to be issued by the Insurance Division in coming months.
Another notable change relates to newly enacted independence requirements for insurance company boards of directors and the committees thereof. New Iowa Code Section 521A.5(4) requires that at least one-third of the directors of a domestic insurer, and at least one-third of the members of each committee of the board of directors, "be persons who are not officers or employees of the insurer or of any entity controlling, controlled by or under common control with the insurer and who are not beneficial owners of a controlling interest in the voting stock of the insurer or entity." At least one independent director is required for a quorum of the board or any committee, and there must also be a committee completely made up of independent directors for the purpose of director nominations, officer evaluations and officer compensation. As with the NAIC Model, a domestic insurer is exempt from these independence requirements if the person controlling the domestic insurer has a board of directors and committees of the board that are in compliance. A domestic insurer may seek a waiver from these independence requirements if certain of its combined annual premium amounts fall below $300 million or based upon unique circumstances.
Other changes to the Iowa Insurance Code include:
- Acquisition Filing (Form A Statement) — Must now include statement regarding filing of ERR; additional standard to meet at hearing — acquisition "not likely to be hazardous or prejudicial to the insurance-buying public"; consolidated hearing option
- Annual Registration (Form B Statement) — Must provide financial statements of affiliates upon request; must now include statement that board oversees corporate governance and internal controls; deemed approval of disclaimer of affiliation after 30 days
- Affiliate Transaction (Form D Statement) — Adds reinsurance pooling agreements to pre-transaction notice as well as guarantees; removes exception for management agreements and service contracts involving less than 0.5 percent of the insurer's surplus as of the prior year
- Examination revisions — Grants Commissioner broad power to examine affiliates
- Confidentiality — Confidentiality provisions expanded so sharing of documents among regulators and law enforcement authorities acceptable pursuant to certain agreements
At the same time the Iowa Legislature passed the amendments to Iowa Code Chapter 521A, it also passed the Insurance Omnibus Bill, which, among other things, revises certain provisions in Section 511.8 relating to investment requirements applicable to life insurance companies and adopts a new Section 505B relating to electronic delivery and consent to insurance notices and documents.
As states continue to adopt the NAIC Model Holding Company laws, there will be significant provisions that are specific to a particular state.