PRINTER'S NO. 1848
THE GENERAL ASSEMBLY OF PENNSYLVANIA
SENATE BILL
No.
1205
Session of
2018
INTRODUCED BY LAUGHLIN AND WHITE, JUNE 11, 2018
REFERRED TO BANKING AND INSURANCE, JUNE 11, 2018
AN ACT
Amending Title 40 (Insurance) of the Pennsylvania Consolidated
Statutes, in regulation of insurers and related persons
generally, providing for corporate governance annual
disclosure; and, in reserve liabilities, further providing
for small company exemption.
The General Assembly of the Commonwealth of Pennsylvania
hereby enacts as follows:
Section 1. Title 40 of the Pennsylvania Consolidated
Statutes is amended by adding a chapter to read:
CHAPTER 39
CORPORATE GOVERNANCE ANNUAL DISCLOSURE
Sec.
3901. Purposes and scope of chapter.
3902. Definitions.
3903. Submittal of CGAD.
3904. Contents of CGAD.
3905. Review of CGAD.
3906. Third-party consultants.
3907. Confidentiality.
3908. Penalties.
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3909. Rules and regulations.
3910. Construction.
3911. Severability.
§ 3901. Purposes and scope of chapter.
(a) Purposes.--The purposes of this chapter are to:
(1) Provide the commissioner a summary of an insurer or
insurance group's corporate governance structure, policies
and practices to permit the commissioner to gain and maintain
an understanding of the insurer or insurance group's
corporate governance framework.
(2) Outline the requirements for completing and filing a
CGAD with the commissioner.
(3) Provide for the confidential treatment of the CGAD
and related information containing confidential and sensitive
information related to an insurer or insurance group's
internal operations and proprietary and trade secret
information which, if made public, could potentially cause
the insurer or insurance group competitive harm or
disadvantage.
(b) Scope.--The requirements of this chapter shall apply to:
(1) an insurer that is domiciled in this Commonwealth;
or
(2) an insurance group of which this Commonwealth is the
lead state.
§ 3902. Definitions.
The following words and phrases when used in this chapter
shall have the meanings given to them in this section unless the
context clearly indicates otherwise:
"Board." The board of directors of the filing entity.
"CGAD-related information." The CGAD or any documents,
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materials or other information, including proprietary and trade
secret information or documents, related to an insurer or
insurance group's CGAD.
"Commissioner." The Insurance Commissioner of the
Commonwealth.
"Corporate governance annual disclosure" or "CGAD." The
confidential report filed by the insurer or insurance group in
accordance with the requirements of this chapter.
"Department." The Insurance Department of the Commonwealth.
"Insurance Company Law." The act of May 17, 1921 (P.L.682,
No.284), known as The Insurance Company Law of 1921.
"Insurance group." The insurers and affiliates included
within an insurance holding company system as defined in section
1401 of the Insurance Company Law.
"Insurer." A fraternal benefit society, a health maintenance
organization, a preferred provider organization, a company, an
association, an exchange, a hospital plan corporation as defined
in and subject to Chapter 61 (relating to hospital plan
corporations) or a professional health services plan corporation
subject to Chapter 63 (relating to professional health services
plan corporations) authorized by the commissioner to transact
the business of insurance in this Commonwealth.
"Lead state." The state responsible for coordination and
communication among state regulators regarding oversight of an
insurance group, as determined by the department in consultation
with other regulators with domestic insurers in the insurance
group.
"NAIC." The National Association of Insurance Commissioners
or successor organization and its affiliates and subsidiaries.
"Senior management." A corporate officer or other high-level
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management official responsible for reporting information to the
board of directors at regular intervals, providing information
to shareholders or providing information to regulators.
§ 3903. Submittal of CGAD.
(a) General rule.--
(1) Beginning January 1, 2020, a domestic insurer or an
insurance group of which this Commonwealth is the lead state
shall submit to the department a CGAD no later than June 1 of
each calendar year.
(2) If a domestic insurer is a member of an insurance
group of which this Commonwealth is not the lead state, the
insurer shall submit the report required by this section to
the commissioner of the lead state for the insurance group in
accordance with the laws of the lead state.
(b) Exception.--An insurer or insurance group not required
to submit a CGAD to the department under subsection (a) shall
submit a copy of the most current version of its CGAD to the
department upon the commissioner's request.
(c) Amendments.--Each year following the initial filing of
the CGAD, the filing entity shall file an amended version of the
previously filed CGAD indicating where changes have been made.
If no changes were made in the information or activities
reported by the filing entity, the filing should so state.
(d) Format.--The filing entity may exercise discretion
regarding the appropriate format for providing the information
required in this chapter and may customize the CGAD to provide
the most relevant information necessary to permit the department
to understand the corporate governance structure, policies and
practices utilized by the filing entity. The department shall
include a sample template on its publicly accessible Internet
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website.
§ 3904. Contents of CGAD.
(a) Contents.--The CGAD must contain the material
information necessary to permit the department to gain an
understanding of the insurer's or insurance group's corporate
governance structure, policies and practices. The commissioner
shall consider premium volume, licensing status in other states
and corporate complexity and scale when evaluating the
comprehensiveness of a company's CGAD.
(b) Discretion.--The insurer or insurance group shall have
discretion over the contents of the CGAD if the CGAD includes
all of the following information:
(1) A description of the insurer's or insurance group's
corporate governance framework, including all of the
following:
(i) The board and committees of the board that are
ultimately responsible for oversight of the filing
entity.
(ii) The level or levels at which board or committee
oversight occurs, such as the ultimate controlling parent
level, an intermediate holding company level or the
individual legal entity level or some combination of
these levels.
(iii) The rationale for the current board size and
structure.
(iv) The duties of the board and each of its
significant committees.
(v) The method of board and committee governance,
such as bylaws, charters or informal mandates.
(vi) The structure of the board's leadership.
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(vii) A discussion of the roles of the chief
executive officer and chairman of the board or their
functional counterparts within the organization.
(2) Policies and practices of the board of directors or
the most senior governing entity and significant committees
of the board or entity, including a discussion of the
following factors:
(i) The way in which the qualifications, expertise
and experience of each board member meet the needs of the
filing entity.
(ii) The method for maintaining an appropriate
amount of independence on the board and its significant
committees.
(iii) The number of meetings held by the board and
its significant committees over the past year, as well as
information on board member attendance.
(iv) The way in which the filing entity identifies,
nominates and elects members to the board and its
committees. Factors discussed may include whether a
nominating committee exists, whether term limits are
placed on directors, how the election and reelection
processes function and whether a board diversity policy
is in place and, if so, how it functions.
(v) 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.
(3) Policies and practices for directing senior
management, including a description of any processes,
practices or suitability standards used to determine whether
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officers and key persons in control functions have the
appropriate background, experience and integrity to fulfill
their prospective roles. The description shall identify:
(i) The following:
(A) The specific positions for which suitability
standards have been developed and a description of
the standards employed.
(B) Procedures in place to monitor any changes
in an officer's or key person's suitability, as
outlined by the filing entity's standards and
procedures to monitor and evaluate such changes.
(ii) The filing entity's code of business conduct
and ethics, including a discussion of compliance with
laws, rules and regulations, and proactive reporting of
any illegal or unethical behavior.
(iii) The filing entity's plans for senior
management succession.
(iv) The filing entity'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 department to understand
how the organization ensures that compensation programs
neither encourage nor reward excessive risk taking.
Elements to be discussed may include any of the
following:
(A) The board's role in overseeing management
compensation programs and practices.
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(B) The various elements of compensation awarded
in the filing entity's compensation programs.
(C) The method by which the filing entity
determines and calculates the amount of each element
of compensation paid.
(D) The way in which compensation programs are
related to both company and individual performance
over time.
(E) Whether compensation programs include risk
adjustments and, if so, how those adjustments are
incorporated into the programs for employees at
different levels.
(F) 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.
(G) Any other factors relevant in understanding
how the filing entity monitors its compensation
policies to determine whether its risk management
objectives are met by incentivizing its employees.
(4) A description of the processes by which the board,
its committees and senior management ensure an appropriate
amount of oversight over critical risk areas impacting the
insurer or insurance group's business activities, including a
discussion of the following:
(i) The way in which oversight and management
responsibilities are delegated among the board, its
committees and senior management.
(ii) The way in which the board remains informed of
the filing entity's strategic plans, the associated risks
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and steps that senior management is taking to monitor and
manage those risks.
(iii) The way in which reporting responsibilities
are organized for each critical risk area. The
description should allow the department 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.
(B) Actuarial function.
(C) Investment decision-making processes.
(D) Reinsurance decision-making processes.
(E) Business strategy.
(F) Finance decision-making processes.
(G) Compliance function.
(H) Financial reporting.
(I) Internal auditing.
(J) Market conduct decision-making processes.
(5) Any other information as specified by regulation.
(c) Additional information.--The department may request
additional information regarding the items provided under
subsection (b) that are material and necessary to provide a
clear understanding of the corporate governance policies, the
reporting or information system or the controls implementing
those policies. An insurer or insurance group shall maintain and
make available supporting information upon examination or upon
the request of the department.
(d) Permissible levels of reporting.--
(1) For purposes of completing the CGAD, the insurer or
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insurance group may provide information regarding corporate
governance at the ultimate controlling parent level, an
intermediate holding company level or the individual legal
entity level, or some combination thereof, depending upon how
the insurer or insurance group has structured its system of
corporate governance. When determining which level to choose,
the insurer or insurance group shall consider the level at
which any of the following occurs:
(i) The insurer's or insurance group's risk appetite
is determined.
(ii) Earnings, capital, liquidity, operations and
reputation of the insurer or insurance group are overseen
collectively and at which the supervision of those
factors are coordinated and exercised.
(iii) Legal liability for failure of general
corporate governance duties would be placed.
(2) An insurer or insurance group that determines the
level of reporting based on any of the criteria under
paragraph (1) shall indicate which of the criteria was used
to determine the level of reporting and explain any
subsequent changes in level of reporting.
(e) Attestation.--The CGAD must include a signature of the
insurer 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 disclosure has been provided to the insurer or insurance
group's board of directors or the appropriate committee of the
board.
§ 3905. Review of CGAD.
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(a) Procedures for review.--The review of the CGAD and any
additional requests for information shall be made by or through
the lead state or, in the case of an insurer that is not part of
an insurance group, the department.
(b) Duplicative filings.--An insurer or insurance group
providing information substantially similar to the information
required by this chapter in other documents provided to the
department, including proxy statements filed in conjunction with
registration requirements or other Federal or State filings
provided to the department, is not required to duplicate that
information in the CGAD but shall only be required to cross-
reference the document in which the information is included.
§ 3906. Third-party consultants.
(a) Assistance with review.--The department may retain, at
the insurer or insurance group's expense, third-party
consultants, including attorneys, actuaries, accountants and
other experts not otherwise a part of the department's staff as
may be reasonably necessary to assist the department in
reviewing the CGAD, CGAD-related information or the insurer's or
insurance group's compliance with this chapter. Before retaining
a third-party consultant, the department shall consider all of
the following:
(1) The complexity of the corporate governance structure
of the insurer or insurance group.
(2) Whether subject matter expertise to effectively
review the report is available within the department.
(b) Advisory capacity.--A person retained under subsection
(a) shall be under the direction and control of the department
and shall act in a purely advisory capacity.
(c) Confidentiality.--Each third-party consultant shall be
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subject to the same confidentiality standards and requirements
as the department.
(d) Verification.--As part of the retention process, a
third-party consultant shall verify to the department, with
notice to the insurer or insurance group, that it:
(1) is free of a conflict of interest;
(2) will comply with the confidentiality standards and
requirements of this chapter; and
(3) has internal procedures in place to monitor
compliance with this section.
(e) Written consent.--A retention agreement with a third-
party consultant shall expressly require the written consent of
the insurer or insurance group prior to making information
provided under this chapter public.
§ 3907. Confidentiality.
(a) General rule.--The CGAD-related information in the
possession or control of the department that is produced by,
obtained by or disclosed to the department or any other person
under this chapter shall be privileged and given confidential
treatment and shall not be:
(1) subject to discovery or admissible as evidence in a
private civil action;
(2) subject to subpoena;
(3) subject to the act of February 14, 2008 (P.L.6,
No.3), known as the Right-to-Know Law; or
(4) made public by the department or any other person
without the prior written consent of the insurer or insurance
group to which it pertains, except as provided in subsection
(c).
(b) Private civil actions.--The commissioner, the
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department, a person who receives CGAD-related information while
acting under the authority of the commissioner or department or
a person with whom the CGAD-related information is shared under
this chapter shall not be permitted or required to testify in a
private civil action concerning confidential CGAD-related
information.
(c) Use of CGAD-related information by department.--To
assist in the performance of regulatory duties, the department
may:
(1) Use CGAD-related information in furtherance of a
regulatory or legal action brought pursuant to the
department's official duties.
(2) Share CGAD-related information with the NAIC,
regulatory or law enforcement officials of this Commonwealth
or other jurisdictions, group supervisors, members of a
supervisory college under section 1406.1 of the Insurance
Company Law and third-party consultants under section 3906
(relating to third-party consultants) if, prior to receiving
the CGAD-related information, the recipient demonstrates by
written statement the necessary authority and intent to give
confidential treatment to the CGAD-related information as
required by this chapter.
(3) Receive and maintain as confidential CGAD-related
information from the NAIC, regulatory or law enforcement
officials of this Commonwealth or other jurisdictions, group
supervisors and members of a supervisory college under
section 1406.1 of The Insurance Company Law if the CGAD-
related information is confidential by law in the
jurisdiction from which it was received. CGAD-related
information obtained under this paragraph shall be given
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confidential treatment, shall not be subject to subpoena and
shall not be made public by the department, the commissioner
or any other person.
(d) Written agreements.--The department shall enter into a
written agreement with the NAIC or a third-party consultant
governing the sharing and use of information provided under this
chapter that includes all of the following:
(1) Specific procedures and protocols for maintaining
the confidentiality and security of CGAD-related information.
(2) Procedures and protocols for sharing CGAD-related
information only with regulators from other states in which
the insurance group has domiciled insurers, including a
written acknowledgment of the recipient's intent and legal
authority to maintain the confidential and privileged status
of the CGAD-related information.
(3) A provision specifying that ownership of the CGAD-
related information shared remains with the department and
that the use of the CGAD-related information is subject to
the direction and approval of the department.
(4) A provision that prohibits storing CGAD-related
information shared under this chapter in a permanent database
after the underlying analysis is completed.
(5) A provision requiring prompt notice to the
department and to the insurer or insurance group regarding a
subpoena, request for disclosure or request for production of
the insurer or insurance group's CGAD-related information in
the possession of the NAIC or third-party consultant.
(6) A requirement to consent to intervention by an
insurer or insurance group in a judicial or an administrative
action in which the NAIC or third-party consultant may be
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required to disclose CGAD-related information or other
confidential information about the insurer or insurance group
that was shared under this chapter.
(e) No delegation.--The sharing of information by the
department under this chapter does not constitute a delegation
of regulatory authority or rulemaking. The department shall be
solely responsible for the administration, execution and
enforcement of this chapter.
(f) No waiver of privilege or confidentiality.--The sharing
of CGAD-related information with, to or by the department as
authorized by this chapter does not constitute a waiver of any
applicable privilege or claim of confidentiality.
(g) Information with third parties.--CGAD-related
information in the possession or control of the NAIC or a third-
party consultant as provided under this chapter shall:
(1) be confidential and privileged;
(2) not be subject to the Right-to-Know Law;
(3) not be subject to subpoena; and
(4) not be subject to discovery or admissible as
evidence in a private civil action.
§ 3908. Penalties.
An insurer or insurance group that fails to timely file a
CGAD as required under this chapter or by regulation shall be
required, after notice and hearing, to pay a penalty of $200 for
each day's delay. The maximum penalty under this section shall
be $25,000 per year.
§ 3909. Rules and regulations.
The department may promulgate rules and regulations and issue
orders necessary to administer and enforce this chapter.
§ 3910. Construction.
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Nothing in this chapter shall be construed to prescribe or
impose corporate governance standards and internal procedures in
addition to those required under applicable State corporate law.
Notwithstanding the foregoing, nothing in this chapter shall be
construed to limit the commissioner's authority or the rights or
obligations of third parties under Article IX of the act of May
17, 1921 (P.L.789, No.285), known as The Insurance Department
Act of 1921.
§ 3911. Severability.
(a) General rule.--Except as provided in subsection (b):
(1) The provisions of this chapter are severable.
(2) If a provision of this chapter or its application to
a person or circumstance is held invalid, the invalidity does
not affect other provisions or applications of this chapter
that can be given effect without the invalid provision or
application.
(b) Exception.--If the addition of section 3907 (relating to
confidentiality) is held invalid, independent of its application
to a person or circumstance, the remaining provisions or
applications of this chapter are void.
Section 2. Section 7142(a)(4) and (b)(2) of Title 40 are
amended to read:
§ 7142. Small company exemption.
(a) Requirements.--A company seeking an exemption for any of
its ordinary life policies issued on or after the operative date
of the valuation manual may file a statement of exemption for
the current calendar year with its domestic commissioner prior
to July 1 of that year if the following conditions are met:
* * *
(4) Any universal life secondary guarantee policies
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issued or assumed by the company with an issue date on or
after [the operative date of the valuation manual] January 1,
2020, meet the definition of a nonmaterial secondary
guarantee universal life product.
(b) Certification.--The statement of exemption under
subsection (a) must certify that:
* * *
(2) Any universal life secondary guarantee business
issued since [the operative date of the valuation manual]
January 1, 2020, meets the definition of a nonmaterial
secondary guarantee universal life product.
* * *
Section 3. This act shall take effect immediately.
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