Current through Reg. 50, No. 13; March 28, 2025
(a) Purpose. The purpose of this section is
to implement Insurance Code Chapter 831 by providing the procedures for filing
and the content of the corporate governance annual disclosures.
(b) Definitions. The definitions in Insurance
Code §
831.0002 apply to this
section. Consistent with Insurance Code §
831.0002(3),
when used in this section the term "insurer" includes Health Maintenance
Organizations. In addition, the following terms are defined as used in this
section:
(1) Board--insurer's board of
directors;
(2) CGAD--Corporate
Governance Annual Disclosure;
(3)
Senior Management--any corporate officer reporting information to the board of
directors at regular intervals or providing this information to shareholders or
regulators, and includes, but is not limited to, the chief executive officer,
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 senior level executive;
(4) TDI--Texas Department of
Insurance.
(c) Filing
procedures.
(1) Filing deadline. An insurer
required to file a CGAD under Insurance Code §
831.0001 must file it
with TDI no later than June 1 of each calendar year.
(2) Signature. 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 group's board of directors or appropriate committee.
(3) Submitting. Insurers and HMOs
must submit the CGAD in an electronic format acceptable to TDI. The electronic
filing address is provided on TDI's website at
www.tdi.texas.gov.
(4) Format of CGAD. The insurer or insurance
group have discretion over the format of the information required by this
section and can customize the CGAD to provide the most relevant information
necessary as long as it allows TDI to gain an understanding of the corporate
governance structure, policies, and practices used by the insurer or insurance
group.
(5) Level providing
information.
(A) 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 or the individual legal entity level,
depending on how the insurer or insurance group has structured its system of
corporate governance.
(B) 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.
(C) If the insurer or insurance group
determines the level of reporting based on the criteria in paragraph (5)(B) of
this subsection, it must indicate which of the three criteria was used to
determine the level of reporting and explain any subsequent changes in level of
reporting.
(6) Filing
if CGAD is completed on insurance group level. 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 National Association of Insurance Commissioners. In
these instances, a copy of the CGAD must also be provided to the chief
regulatory official of any state in which the insurance group has a domestic
insurer, on request.
(7) Annual
filing of amended versions. Each year following the initial filing of the CGAD,
the insurer or insurance group must file:
(A)
an amended version of the previously filed CGAD indicating where changes have
been made; or
(B) a letter stating
that no changes were made in the information or activities reported by the
insurer or insurance group since the previously filed CGAD. The letter must
state the date of the previously filed CGAD.
(d) Content of CGAD. The insurer or insurance
group must 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. The insurer or insurance group may
reference other filings that were previously submitted to TDI instead of
resubmitting similar information.
(e) CGAD considerations. The CGAD must
describe the insurer's or insurance group's corporate governance framework and
structure including consideration of the following:
(1) the board and various board committees
ultimately responsible for overseeing the insurer or insurance group and the
level at which that oversight occurs. The level of oversight may be at the
ultimate controlling parent level, intermediate holding company control level,
or the individual legal entity control level, depending on how the insurer or
insurance group has structured its system of corporate governance. The insurer
or insurance group must describe and discuss the rationale for the current
board size and structure; and
(2)
the duties of the board and each of its significant committees and how they are
governed under the bylaws, charters, and informal mandates, 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.
(f) Factors. The insurer or
insurance group must describe the policies and practices of the most senior
governing entity and its significant committees, including a discussion of the
following factors:
(1) How the
qualifications, expertise, and experience of each board member meet the needs
of the insurer or insurance group.
(2) How an appropriate amount of independence
is maintained on the board and its significant committees.
(3) The number of meetings held by the board
and its significant committees over the past year as well as information on
director attendance.
(4) How the
insurer or insurance group identifies, nominates, and elects members to the
board and its committees. The discussion should include:
(A) Whether a nomination committee is in
place to identify and select individuals for consideration.
(B) Whether term limits are placed on
directors.
(C) How the election
and re-election processes function.
(D) Whether a board diversity policy is in
place and if so, how it functions.
(5) 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.
(g) Additional factors. The insurer or
insurance group must describe the policies and practices for directing senior
management, including a description of the following factors:
(1) Any processes or practices (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:
(A)
identification of the specific positions for which suitability standards have
been developed and a description of the standards employed; and
(B) 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 such changes.
(2) The insurer's or insurance
group's code of business conduct and ethics, the discussion of which considers,
for example:
(A) compliance with laws, rules,
and regulations; and
(B) proactive
reporting of any illegal or unethical behavior.
(3) 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 must include enough
detail to allow the director to understand how the organization ensures that
compensation programs do not encourage and reward excessive risk taking.
Elements to be discussed may include:
(A) the
board's role in overseeing management compensation programs and practices;
(B) 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;
(C) how compensation programs are related to
both company and individual performance over time;
(D) whether compensation programs include
risk adjustments and how those adjustments are incorporated into the programs
for employees at different levels;
(E) any "clawback 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
(F) 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.
(4) The insurer's or insurance group's plans
for chief executive officer and senior management succession.
(h) Oversight. The insurer or
insurance group must 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:
(1) how oversight and management
responsibilities are delegated between the board, its committees, and senior
management;
(2) 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; and
(3) how reporting responsibilities
are organized for each critical risk area. The description should allow the
board 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 the following critical risk areas of the insurer:
(A) risk management processes. An ORSA
summary report filer may refer to its ORSA summary report under Insurance Code
Chapter 30;
(C) investment
decision-making processes;
(D)
reinsurance decision-making processes;
(E) business strategy/finance decision-making
processes;
(G) financial
reporting/internal auditing; and
(H) market conduct decision-making processes.
(i)
Severability. If any portion of this section, or its application to any person
or circumstance, is held invalid, the determination does not affect other
portions of this section or its applications that can be given effect without
the invalid portion or application. To this end, the provisions of this rule
are severable.