Rule 69O-143.0465 is created to implement the NAIC Holding Company System Regulatory Act #440. Rule 69O-143.0466 is created to implement the NAIC Corporate Governance Annual Disclosure Model Act #305 and the NAIC Corporate ....

 

DEPARTMENT OF FINANCIAL SERVICES

OIR – Insurance Regulation

RULE NOS.:RULE TITLES:

69O-143.0465Group-wide Supervision of Internationally Active Insurance Groups

69O-143.0466Contents of Corporate Governance Annual Disclosure

PURPOSE AND EFFECT: Rule 69O-143.0465, F.A.C. is created to implement the NAIC Holding Company System Regulatory Act #440. Rule 69O-143.0466, F.A.C. is created to implement the NAIC Corporate Governance Annual Disclosure Model Act #305 and the NAIC Corporate Governance Annual Disclosure Model Regulation #306.

SUMMARY: Rule 69O-143.0465, F.A.C. allows the Office to act as the group-wide supervisor for any internationally active insurance group and may acknowledge another regulatory official to act as the group-wide supervisor. Rule 69O-143.0466, F.A.C. provides items that must be included in an insurer’s corporate governance annual disclosure.

SUMMARY OF STATEMENT OF ESTIMATED REGULATORY COSTS AND LEGISLATIVE RATIFICATION:

The Agency has determined that this will not have an adverse impact on small business or likely increase directly or indirectly regulatory costs in excess of $200,000 in the aggregate within one year after the implementation of the rule. A SERC has not been prepared by the Agency.

The Agency has determined that the proposed rule is not expected to require legislative ratification based on the statement of estimated regulatory costs or if no SERC is required, the information expressly relied upon and described herein: Agency personnel familiar with the subject matter of the rule amendment have performed an economic analysis of the rule amendment that shows that the rule amendment is unlikely to have an adverse impact on the State economy in excess of the criteria established in Section 120.541(2)(a), Florida Statutes.

Any person who wishes to provide information regarding a statement of estimated regulatory costs, or provide a proposal for a lower cost regulatory alternative must do so in writing within 21 days of this notice.

RULEMAKING AUTHORITY: 624.308(1), 628.801(1), 628.804(4), and 628.8015(6) FS.

LAW IMPLEMENTED: 624.307(1), 628.801, 628.804, and 628.8015 FS.

IF REQUESTED WITHIN 21 DAYS OF THE DATE OF THIS NOTICE, A HEARING WILL BE SCHEDULED AND ANNOUNCED IN THE FAR.

THE PERSON TO BE CONTACTED REGARDING THE PROPOSED RULE IS: Michael Lawrence, Jr., Chief Legal Counsel, Office of Insurance Regulation, [e-mail], [phone].

 

THE FULL TEXT OF THE PROPOSED RULE IS:

 

69O-143.0465 Group-wide Supervision of Internationally Active Insurance Groups

(1) For the purposes of this rule, “internationally active insurance group” means an insurance holding company system that:

(a) Includes an insurer registered under Rule 143.046, F.A.C.; and

(b) Meets the following criteria:

1. Premiums written in at least three countries;

2. The percentage of gross premiums written outside the United States is at least ten percent (10%) of the insurance holding company system’s total gross written premiums; and

3. Based on a three-year rolling average, the total assets of the insurance holding company system are at least fifty billion dollars ($50,000,000,000) or the total gross written premiums of the insurance holding company system are at least ten billion dollars ($10,000,000,000).

(2)(a) The Office is authorized to act as the group-wide supervisor for any internationally active insurance group in accordance with Rule 69O-143.046, F.A.C., and Section 628.804, F.S. However, the Office may otherwise acknowledge another regulatory official as the group-wide supervisor where the internationally active insurance group:

1. Does not have substantial insurance operations in the United States;

2. Has substantial insurance operations in the United States, but not in this state; or

3. Has substantial insurance operations in the United States and this state, but the Office has determined pursuant to the factors set forth in subsections (3) and (7) that the other regulatory official is the appropriate group-wide supervisor.

(b) An insurance holding company system that does not otherwise qualify as an internationally active insurance group may request that the Office make a determination or acknowledgment as to a group-wide supervisor pursuant to this subsection.

(3)(a) In cooperation with other state, federal and international regulatory agencies, the Office will identify a single group-wide supervisor for an internationally active insurance group. The Office may determine that the Office is the appropriate group-wide supervisor for an internationally active insurance group that conducts substantial insurance operations concentrated in this state. However, the Office may acknowledge that a regulatory official from another jurisdiction is the appropriate group-wide supervisor for the internationally active insurance group. The Office shall consider the following factors when making a determination or acknowledgment under this subsection:

1. The place of domicile of the insurers within the internationally active insurance group that hold the largest share of the group’s written premiums, assets or liabilities;

2. The place of domicile of the top-tiered insurer(s) in the insurance holding company system of the internationally active insurance group;

3. The location of the executive offices or largest operational offices of the internationally active insurance group;

4. Whether another regulatory official is acting or is seeking to act as the group-wide supervisor under a regulatory system that the Office determines to be:

a. Substantially similar to the system of regulation provided under the laws of this state, or

b. Otherwise sufficient in terms of providing for group-wide supervision, enterprise risk analysis, and cooperation with other regulatory officials; and

5. Whether another regulatory official acting or seeking to act as the group-wide supervisor provides the Office with reasonably reciprocal recognition and cooperation.

(b) However, a regulatory official identified under this rule as the group-wide supervisor may determine that it is appropriate to acknowledge another supervisor to serve as the group-wide supervisor. The acknowledgment of the group-wide supervisor shall be made after consideration of the factors listed in subparagraphs (a)1. through (a)5. above, and shall be made in cooperation with and subject to the acknowledgment of other regulatory officials involved with supervision of members of the internationally active insurance group, and in consultation with the internationally active insurance group.

(4) Notwithstanding any other provision of law, when another regulatory official is acting as the group-wide supervisor of an internationally active insurance group, the Office shall acknowledge that regulatory official as the group-wide supervisor. However, in the event of a material change in the internationally active insurance group that results in:

(a) The internationally active insurance group’s insurers domiciled in this state holding the largest share of the group’s premiums, assets or liabilities; or

(b) This state being the place of domicile of the top-tiered insurer(s) in the insurance holding company system of the internationally active insurance group, the Office shall make a determination or acknowledgment as to the appropriate group-wide supervisor for such an internationally active insurance group pursuant to subsection (3).

(5) Pursuant to Section 628.801(3), F.S., the Office is authorized to collect from any insurer registered pursuant to Rule 143.046, F.A.C., all information necessary to determine whether the Office may act as the group-wide supervisor of an internationally active insurance group or if the Office may acknowledge another regulatory official to act as the group-wide supervisor. Prior to issuing a determination that an internationally active insurance group is subject to group-wide supervision by the Office, the Office shall notify the insurer registered pursuant to Rule 143.046, F.A.C., and the ultimate controlling person within the internationally active insurance group. The internationally active insurance group shall have not less than thirty (30) days to provide the Office with additional information pertinent to the pending determination. The Office shall publish the identity of internationally active insurance groups that the Office has determined are subject to group-wide supervision by the Office.

(6) If the Office is the group-wide supervisor for an internationally active insurance group, the Office is authorized to engage in any of the following group-wide supervision activities.

(a) Assess the enterprise risks within the internationally active insurance group to ensure that:

1. The material financial condition and liquidity risks to the members of the internationally active insurance group that are engaged in the business of insurance are identified by management; and

2. Reasonable and effective mitigation measures are in place.

(b) Request, from any member of an internationally active insurance group subject to the Office’s supervision, information necessary and appropriate to assess enterprise risk, including, but not limited to, information about the members of the internationally active insurance group regarding:

1. Governance, risk assessment and management;

2. Capital adequacy; and

3. Material intercompany transactions.

(c) Coordinate and, through the authority of the regulatory officials of the jurisdictions where members of the internationally active insurance group are domiciled, compel development and implementation of reasonable measures designed to ensure that the internationally active insurance group is able to timely recognize and mitigate enterprise risks to members of such internationally active insurance group that are engaged in the business of insurance.

(d) Communicate with other state, federal and international regulatory agencies for members within the internationally active insurance group and share relevant information subject to the confidentiality provisions of Section 628.801(4), F.S., through supervisory colleges as set forth in Section 628.805, F.S., or otherwise.

(e) Enter into agreements with or obtain documentation from any insurer registered under Rule 69O-143.046, F.A.C., any member of the internationally active insurance group, and any other state, federal and international regulatory agencies for members of the internationally active insurance group, providing the basis for or otherwise clarifying the Office's role as group-wide supervisor, including provisions for resolving disputes with other regulatory officials. Such agreements or documentation shall not serve as evidence in any proceeding that any insurer or person within an insurance holding company system not domiciled or incorporated in this state is doing business in this state or is otherwise subject to jurisdiction in this state.

(f) Other group-wide supervision activities, consistent with the authorities and purposes enumerated above, as considered necessary by the Office.

(7) If the Office acknowledges that another regulatory official from a jurisdiction that is not accredited by the NAIC is the group-wide supervisor, the Office is authorized to reasonably cooperate, through supervisory colleges or otherwise, with group-wide supervision undertaken by the group-wide supervisor, provided that:

(a) The Office's cooperation is in compliance with the laws of this state; and

(b) The regulatory official acknowledged as the group-wide supervisor also recognizes and cooperates with the Office's activities as a group-wide supervisor for other internationally active insurance groups where applicable. Where such recognition and cooperation is not reasonably reciprocal, the Office is authorized to refuse recognition and cooperation.

(8) The Office is authorized to enter into agreements with or obtain documentation from any insurer registered under Rule 69O-143.046, F.A.C., any affiliate of the insurer, and other state, federal and international regulatory agencies for members of the internationally active insurance group, that provide the basis for or otherwise clarify a regulatory official's role as group-wide supervisor.

Rulemaking Authority 624.308(1), 628.801(1), 628.804(4) FS. Law Implemented 624.307(1), 628.801, 628.804 FS. History-New _____.

 

69O-143.0466 Contents of Corporate Governance Annual Disclosure

The corporate governance annual disclosure filed in accordance with Section 628.8015, F.S., must describe:

(1) The insurer’s or insurance group’s corporate governance framework and structure including consideration of the following:

(a) The Board of Directors (“Board”) and various committees thereof ultimately responsible for overseeing the insurer or insurance group and the level(s) at which that oversight occurs, including ultimate control level, intermediate holding company, and legal entity. 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, including 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.

(2) 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.; and

(d) How the insurer or insurance group identifies, nominates, and elects members to the Board and its committees. The discussion should include:

1. Whether a nomination committee is in place to identify and select individuals for consideration,

2. Whether term limits are placed on directors,

3. How the election and re-election processes function,

4. Whether a Board diversity policy is in place and if so, how it functions, and

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 and any Board or committee training programs that have been put in place).

(3) The policies and practices for directing senior management, including a description of the following factors:

(a) Any processes or practices, including 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:

1. Identification of the specific positions for which suitability standards have been developed and a description of the standards employed, and

2. 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;

(b) The insurer’s or insurance group’s code of business conduct and ethics, the discussion of which considers:

1. Compliance with laws, rules, and regulations, and

2. 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 Office to understand how the organization ensures that compensation programs do not encourage and/or reward excessive risk taking. Elements to be discussed may include:

1. The Board’s role in overseeing management compensation programs and practices,

2. 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,

3. How compensation programs are related to both company and individual performance over time,

4. Whether compensation programs include risk adjustments and how those adjustments are incorporated into the programs for employees at different levels,

5. 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

6. 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; and

(d) The insurer’s or insurance group’s plans for the Chief Executive Officer and senior management succession.

(4) 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 Office 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:

1. Risk management processes. An ORSA summary report filer may refer to its ORSA summary report,

2. Actuarial function,

3. Investment decision-making processes,

4. Reinsurance decision-making processes,

5. Business strategy/finance decision-making processes,

6. Compliance function,

7. Financial reporting/internal auditing, and

8. Market conduct decision-making processes.

Rulemaking Authority 624.308(1), 628.8015(6) FS. Law Implemented 624.307(1), 628.8015 FS. History-New _____.

 

NAME OF PERSON ORIGINATING PROPOSED RULE: Michael Lawrence, Jr., Chief Legal Counsel

NAME OF AGENCY HEAD WHO APPROVED THE PROPOSED RULE: Financial Services Commission

DATE PROPOSED RULE APPROVED BY AGENCY HEAD: September 22, 2020

DATE NOTICE OF PROPOSED RULE DEVELOPMENT PUBLISHED IN FAR: May 6, 2020