Current through all regulations passed and filed through September 16, 2024
(A) Purpose
The purpose of this rule is to establish the procedures for
filing, and the required content of, the corporate governance annual
disclosure, deemed necessary by the superintendent pursuant to sections
3901.072
to
3901.078 of the Revised
Code.
(B) Authority
This rule is promulgated pursuant to the authority vested in
the superintendent under sections
3901.041
and
3901.077
of the
Revised Code.
(C)
Definitions
(1) "Board" means board of
directors of an insurer or an insurance group.
(2) "CGAD" means a corporate governance
annual disclosure.
(3) "Insurance
Group" has the same meaning as defined in division (B)(2) of section
3901.072
of the Revised Code.
(4) "Insurer"
has the same meaning as defined in division (B)(3) of section
3901.072
of the Revised Code.
(5) "NAIC"
means the national association of insurance commissioners.
(6) "SEC" means the United States securities
and exchange commission.
(7)
"Senior Management" means any corporate officer responsible for reporting
information to the board at regular intervals or providing this information to
shareholders or regulators, and shall include, for example and without
limitation, the chief executive officer (CEO), chief financial officer, chief
operations officer, chief procurement officer, chief legal officer, chief
information officer, chief technology officer, chief revenue officer, chief
visionary officer, or any other "C" level executive.
(D) Filing procedure
(1) An insurer, or the insurance group of
which the insurer is a member, required to file a CGAD by section
3901.073
of the Revised Code, shall, no later than June first of each calendar year,
submit to the superintendent a CGAD that contains the information described in
paragraph (E) of this rule.
(2) The
CGAD must include a signature of the insurer's or insurance group's chief
executive officer or corporate secretary attesting to the best of that
individual's belief and knowledge that the insurer or insurance group has
implemented the corporate governance practices and that a copy of the CGAD has
been provided to the insurer's or insurance groups board or the appropriate
committee thereof.
(3) The insurer
or insurance group shall have the discretion regarding the appropriate format
for providing the information required by these regulations and is permitted to
customize the CGAD to provide the most relevant information necessary to permit
the superintendent to gain an understanding of the corporate governance
structure, policies and practices utilized by the insurer or the insurance
group.
(4) For purposes of
completing the CGAD, the insurer or insurance group may choose to provide
information on governance activities that occur at the ultimate controlling
parent level, an intermediate holding company level, and/or the individual
legal entity level, depending upon how the insurer or insurance group has
structured its system of corporate governance. The insurer or insurance group
is encouraged to make the CGAD disclosures at the level at which the insurer's
or insurance group's risk appetite is determined, or at which the earnings,
capital, liquidity, operations, and reputation of the insurer are overseen
collectively and at which the supervision of those factors are coordinated and
exercised, or the level at which legal liability for failure of general
corporate governance duties would be placed. If the insurer or insurance group
determines the level of reporting based on these criteria, it shall indicate
which of the three criteria was used to determine the level of reporting and
explain any subsequent changes in level of reporting.
(5) Notwithstanding paragraph (D)(1) of this
rule, and as outlined in section
3901.073
of the Revised Code, if the CGAD is completed at the insurance group level,
then it must be filed with the lead state of the group as determined by the
procedures outlined in the most recent financial analysis handbook adopted by
the NAIC. In these instances, a copy of the CGAD must also be provided, upon
request, to the chief regulatory official of any state in which the insurance
group has a domestic insurer.
(6)
An insurer or insurance group may comply with this section by referencing other
existing documents, such as an own risk and solvency assessment (ORSA) summary
report, holding company form B or form F filings, securities and exchange
commission proxy statements, foreign regulatory reporting requirements, etc.,
if the documents provide information that is comparable to the information
described in paragraph (E) of this rule. The insurer or insurance group shall
clearly reference the location of the relevant information with the CGAD and
attach the referenced document if it is not already filed with the
department.
(7) Each year following
the initial filing of the CGAD, the insurer or insurance group shall file an
amended version of the previously filed CGAD, indicating revisions made, or a
copy of the prior year filing with a dated statement indicating that no changes
have been made in the information or activities reported in the previous year
CGAD.
(E) Contents of
corporate governance annual disclosure
(1) The
insurer or insurance group shall be as descriptive as possible in completing
the CGAD, with inclusion of attachments or example documents that are used in
the governance process, since these may provide a means to demonstrate the
strengths of their governance framework and practices.
(2) The CGAD shall describe the insurer's or
insurance group's corporate governance framework and structure including
consideration of the following:
(a) The board
and various committees thereof ultimately responsible for overseeing the
insurer or insurance group and the level(s) at which that oversight occurs,
such as ultimate control level, intermediate holding company, legal entity,
etc. The insurer or insurance group shall describe and discuss the rationale
for the current board size and structure; and
(b) The duties of the board and each of its
significant committees and how they are governed, such as bylaws, charters,
informal mandates, etc., as well as how the board's leadership is structured,
including a discussion of the roles of chief executive officer and chairman of
the board within the organization.
(3) The insurer, or insurance group, shall
describe the policies and practices of the most senior governing entity and
significant committees thereof, including a discussion of the following
factors:
(a) How the qualifications, expertise
and experience of each board member meet the needs of the insurer or insurance
group;
(b) How an appropriate
amount of independence is maintained on the board and its significant
committees;
(c) The number of
meetings held by the board and its significant committees over the past year as
well as information on director attendance;
(d) How the insurer or insurance group
identifies, nominates and elects members to the board and its committees. The
discussion should include, for example:
(i)
Whether a nomination committee is in place to identify and select individuals
for consideration;
(ii) Whether
term limits are placed on directors;
(iii) How the election and re-election
processes function; and
(iv)
Whether a board diversity policy is in place and if so, how it
functions.
(e) The
processes in place for the board to evaluate its performance and the
performance of its committees, as well as any recent measures taken to improve
performance, including any board or committee training programs that have been
put in place.
(4) The
insurer or insurance group shall describe the policies and practices for
directing senior management, including a description of the following factors:
(a) Any process or practices, such as
suitability standards, to determine whether officers and key persons in control
functions have the appropriate background, experience and integrity to fulfill
their prospective roles, including:
(i)
Identification of the specific positions for which suitability standards have
been developed and a description of the standards employed; and
(ii) Any changes in an officer's or key
person's suitability as outlined by the insurer's or insurance group's
standards and procedures to monitor and evaluate.
(b) The insurer's or insurance group's code
of business conduct and ethic, the discussion of which considers, for example:
(i) Compliance with laws, rules, and
regulations; and
(ii) Proactive
reporting of any illegal or unethical behavior.
(c) The insurer's or insurance group's
processes for performance evaluation, compensation and corrective action to
ensure effective senior management throughout the organization, including a
description of the general objectives of significant compensation programs and
what the programs are designed to reward. The description shall include
sufficient detail to allow the superintendent to understand how the
organization ensures that compensation programs do not encourage and/or reward
excessive risk taking. Elements to be discussed may include, for example:
(i) The board's role in overseeing management
compensation programs and practices;
(ii) The various elements of compensation
awarded in the insurer's or insurance group's compensation programs and how the
insurer or insurance group determines and calculates the amount of each element
of compensation paid;
(iii) How
compensation programs are related to both company and individual performance
over time;
(iv) Whether
compensation programs include risk adjustments and how those adjustments are
incorporated into the programs for employees at different levels;
(v) Any claw-back provisions built into the
programs to recover awards or payments if the performance measures upon which
they are based are restated or otherwise adjusted; and
(vi) Any other factors relevant in
understanding how the insurer or insurance group monitors its compensation
policies to determine whether its risk management objectives are met by
incentivizing its employees.
(d) The insurer's or insurance group's plans
for CEO and senior management succession.
(5) The insurer or insurance group shall
describe the processes by which the board, its committees and senior management
ensure an appropriate amount of oversight to the critical risk areas impacting
the insurer's business activities including a discussion of:
(a) How oversight and management
responsibilities are delegated between the board, its committees, and senior
management;
(b) How the board is
kept informed of the insurer's strategic plans, the associated risks, and steps
that senior management is taking to monitor and manage those risks;
(c) How reporting responsibilities are
organized for each critical risk area. The description should allow the
superintendent to understand the frequency at which information on each
critical risk area is reported to and reviewed by senior management and the
board. This description may include, for example, the following critical risk
areas of the insurer:
(i) Risk management
processes. An insurer, or the insurance group of which the insurer is a member,
that files an ORSA summary report with the superintendent pursuant to section
3901.375 of the
Revised Code may refer to its ORSA summary report;
(ii) Actuarial function;
(iii) Investment decision-making
processes;
(iv) Reinsurance
decision-making processes;
(v)
Business strategy/finance decision-making processes;
(vi) Compliance function;
(vii) Financial reporting/internal auditing;
and
(viii) Market conduct
decision-making processes.
(F) Severability
If any paragraph, term or provision of this rule is adjudged
invalid for any reason, the judgment shall not affect, impair or invalidate any
other paragraph, term or provision of this rule, but the remaining paragraphs,
terms and provisions shall be and continue in full force and effect.