HB 102

Under existing law, an insurer domiciled in this state provides information to the Commissioner of Insurance concerning the corporate governance practices of the insurer at least once every five years during a full-scope examination of the insurer by the commissioner

This bill would require an insurer domiciled in this state to provide information to the Commissioner of Insurance on an annual basis regarding the corporate governance practices of the insurer by adopting a law substantially similar to the Corporate Governance Model Act developed by the National Association of Insurance Commissioners

The bill would provide that the information would be confidential and privileged

Under existing law, the Insurance Commissioner regulates insurance holding company systems that are insurers in this state. Under the law, the commissioner is authorized to act as a group-wide supervisor for an internationally active insurance group or to acknowledge another regulatory person for that purpose

This bill would provide a definition of internationally active insurance group and specify that documents, materials, and information filed with the commissioner relative to the group-wide supervision of an internationally active insurance group are confidential and privileged

Relating to insurance; to add Chapter 29B to Title 27, Code of Alabama 1975, to require insurers domiciled in this state to provide information to the Commissioner of Insurance on an annual basis regarding the corporate governance practices of the insurer; to provide that the information would be confidential and privileged under certain conditions; and to amend Sections 27-29-1 and 27-29-7, Code of Alabama 1975, relating to insurance holding company systems, to provide a definition of internationally active insurance groups and to specify that documents, materials, and other information filed with the Commissioner of Insurance relative to the group-wide supervision of an internationally active insurance group are confidential and privileged.

Section 1

Chapter 29B is added to Title 27, Code of Alabama 1975, to read as follows: Chapter 29B. Corporate Governance Annual Disclosure Act. §27-29B-1. Purpose and Scope. (a) The purpose of this chapter is to do all of the following: (1) Provide the Commissioner of Insurance 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's corporate governance framework. (2) Outline the requirements for completing a corporate governance annual disclosure with the commissioner. (3) Provide for the confidential treatment of the corporate governance annual disclosure and related information that will contain 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) Nothing in this chapter shall be construed to prescribe or impose corporate governance standards and internal procedures beyond the procedures that are required under applicable state corporate law. Notwithstanding the foregoing, nothing in this chapter shall be construed to limit the authority of the commissioner, or the rights or obligations of third parties, under Chapter 2 of this title. (c) The requirements of this chapter shall apply to all insurers domiciled in this state. §27-29B-2. Definitions. For purposes of this chapter, the following definitions apply: (1) COMMISSIONER. The Commissioner of Insurance of the Department of Insurance. (2) CORPORATE GOVERNANCE ANNUAL DISCLOSURE or CGAD. A confidential report filed by an insurer or insurance group in accordance with the requirements of this chapter. (3) INSURANCE GROUP. Insurers and affiliates included within an insurance holding company system as defined in Chapter 29 of this title. (4) INSURER. As defined in Section 27-1-2, except the term shall not include agencies, authorities, or instrumentalities of the United States, its possessions and territories, the Commonwealth of Puerto Rico, the District of Columbia, or a state or political subdivision of a state. (5) NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS or NAIC. The National Association of Insurance Commissioners and its affiliates and subsidiaries. §27-29B-3. Disclosure Requirement. (a) Not later than June 1 of each calendar year, an insurer or the insurance group of which the insurer is a member, shall submit to the commissioner a Corporate Governance Annual Disclosure (CGAD) that contains the information described in Section 27-29B-5. Notwithstanding any request from the commissioner made pursuant to subsection (c), if the insurer is a member of an insurance group 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 as determined by the procedures outlined in the most recent Financial Analysis Handbook adopted by the NAIC. (b) The CGAD shall 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 has implemented the corporate governance practices and that a copy of the disclosure has been provided to the board of directors of the insurer or the appropriate committee thereof. (c) An insurer that is not required to submit a CGAD under this section shall submit a CGAD at the request of the commissioner. (d) For purposes of completing the CGAD, the insurer or 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, based on the structure of the system of corporate governance of the insurer or insurance group. 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 the level 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 at 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. (e) The review of the CGAD and any additional requests for information shall be made through the lead state as determined by the procedures within the most recent Financial Analysis Handbook as provided for in subsection (a). (f) Insurers providing information substantially similar to the information required by this chapter in other documents provided to the commissioner, including proxy statements filed in conjunction with Form B requirements, or other state or federal filings provided to the Department of Insurance shall not be required to duplicate that information in the CGAD, but shall only be required to cross reference the document in which the information is included. §27-29B-4. Rules. The commissioner, upon notice and opportunity for all interested persons to be heard, may issue rules and orders as necessary to carry out this chapter. §27-29B-5. Contents of Corporate Governance Annual Disclosure. (a) The insurer or insurance group shall have discretion over the responses to the CGAD inquiries, provided the CGAD shall contain the material information necessary to permit the commissioner to gain an understanding of the insurer's or insurance group's corporate governance structure, policies, and practices. The commissioner may request additional information that the commissioner deems material and necessary to provide the commissioner with a clear understanding of the corporate governance policies or the reporting or information system or controls implementing those policies. (b) Notwithstanding subsection (a), the CGAD shall be prepared consistent with rules adopted by the commissioner which shall be substantially similar to the Corporate Governance Annual Disclosure Model Regulation developed by the NAIC. Documentation and supporting information shall be maintained and made available upon examination or upon request of the commissioner. §27-29B-6. Confidentiality. (a) Documents, materials, or other information including the CGAD, in the possession or control of the Department of Insurance that are obtained by, created by, or disclosed to the commissioner or any other person under this chapter, are recognized by this state as being proprietary and to contain trade secrets. All of the documents, materials, or other information shall be confidential by law and privileged, shall not be subject to any open records, freedom of information, sunshine, or other public record disclosure laws, shall not be subject to subpoena, and shall not be subject to discovery or admissible in evidence in any private civil action. However, the commissioner may use the documents, materials, or other information in the furtherance of any regulatory or legal action brought as a part of the official duties of the commissioner. The commissioner shall not otherwise make the documents, materials, or other information public without the prior written consent of the insurer. Nothing in this section shall be construed to require written consent of the insurer before the commissioner may share or receive confidential documents, materials, or other CGAD-related information pursuant to subsection (c) to assist in the performance of the duties of the commissioner. (b) Neither the commissioner nor any person who received documents, materials, or other CGAD-related information, through examination or otherwise, while acting under the authority of the commissioner, or with whom the documents, materials, or other information are shared pursuant to this chapter, shall be permitted or required to testify in any private civil action concerning any confidential documents, materials, or information subject to subsection (a). (c) In order to assist in the performance of the regulatory duties of the commissioner, the commissioner may do all of the following: (1) Upon request, may share documents, materials, or other CGAD-related information, including the confidential and privileged documents, materials, or information subject to subsection (a), including proprietary and trade secret documents and materials, with other state, federal, and international financial regulatory agencies, including members of any supervisory college as defined in Section 27-29-6.1, with the NAIC, and with third party consultants pursuant to Section 27-29B-7, provided the recipient agrees in writing to maintain the confidentiality and privileged status of the CGAD-related documents, material, or other information and has verified in writing the legal authority to maintain confidentiality. (2) May receive documents, materials, or other CGAD-related information, including otherwise confidential and privileged documents, materials, or information, including proprietary and trade secret information or documents, from regulatory officials of other state, federal, and international financial regulatory agencies, including members of any supervisory college as defined in Section 27-29-6.1, and from the NAIC, and shall maintain as confidential or privileged any documents, materials, or information received with notice or the understanding that it is confidential or privileged under the laws of the jurisdiction that is the source of the document, material, or information. (d) The sharing of information and documents by the commissioner pursuant to this chapter shall not constitute a delegation of regulatory authority or rulemaking, and the commissioner shall be solely responsible for the administration, execution, and enforcement of this chapter. (e) No waiver of any applicable privilege or claim of confidentiality in the documents, proprietary and trade secret materials, or other CGAD-related information shall occur as a result of disclosure of CGAD-related information or documents to the commissioner under this section or as a result of sharing authorized in this chapter. §27-29B-7. NAIC and Third-party Consultants. (a) The commissioner, at the insurer's expense, may retain third-party consultants, including attorneys, actuaries, accountants, and other experts not otherwise a part of the staff of the commissioner as may be reasonably necessary to assist the commissioner in reviewing the CGAD and related information or the insurer's compliance with this chapter. (b) Any persons retained under subsection (a) shall be under the direction and control of the commissioner and shall act in a purely advisory capacity. (c) The NAIC and third-party consultants shall be subject to the same confidentiality standards and requirements as the commissioner. (d) As part of the retention process, a third-party consultant shall verify to the commissioner, with notice to the insurer, that it is free of a conflict of interest and that it has internal procedures in place to monitor compliance with a conflict and to comply with the confidentiality standards and requirements of this chapter. (e) A written agreement with the NAIC or a third-party consultant governing sharing and use of information provided pursuant to this chapter shall contain all of the following provisions and expressly require the written consent of the insurer prior to making public information provided under this chapter: (1) Specific procedures and protocols for maintaining the confidentiality and security of CGAD-related information shared with the NAIC or a third-party consultant pursuant to this chapter. (2) Procedures and protocols for sharing by the NAIC only with other state regulators from states in which the insurance group has domiciled insurers. The agreement shall provide that the recipient agrees in writing to maintain the confidentiality and privileged status of the CGAD-related documents, materials, or other information and has verified in writing the legal authority to maintain confidentiality. (3) A provision specifying that ownership of the CGAD-related information shared with the NAIC or a third-party consultant remains with the Department of Insurance and the use of the information by NAIC or third-party consultant is subject to the direction of the commissioner. (4) A provision that prohibits the NAIC or a third-party consultant from storing the information shared pursuant to this chapter in a permanent database after the underlying analysis is completed. (5) A provision requiring the NAIC or third-party consultant to provide prompt notice to the commissioner and to the insurer or insurance group regarding any subpoena, request for disclosure, or request for production of the insurer's CGAD-related information. (6) A requirement that the NAIC or a third-party consultant consent to intervention by an insurer in any judicial or administrative action in which the NAIC or a third-party consultant may be required to disclose confidential information about the insurer shared with the NAIC or a third-party consultant pursuant to this chapter. §27-29B-8. Sanctions. Any insurer failing, without just cause, to timely file the CGAD as required in this chapter shall be required, after notice and hearing, to pay a penalty of one thousand dollars ($1,000) for each day's delay, to be recovered by the commissioner. Any penalty recovered shall be deposited in the State General Fund. The maximum penalty under this section is one hundred thousand dollars ($100,000). The commissioner may reduce the penalty if the insurer demonstrates to the commissioner that the imposition of the penalty would constitute a financial hardship to the insurer. §27-29B-9. Severability Clause. If any provision of this chapter, except Section 27-29B-6, or the application thereof to any person or circumstance is held invalid, that determination shall not affect the provisions or applications of this chapter which can be given effect without the invalid provisions or application, and to that end the provisions of this chapter, with the exception of Section 27-29B-6, are severable.

Section 2

Sections 27-29-1 and 27-29-7, Code of Alabama 1975, are amended to read as follows:

§27-29-1.

For purposes of this chapter, unless otherwise stated, the following terms shall have the meanings respectively ascribed to them by this section:

(1) AFFILIATE. The term shall include an affiliate of, or person affiliated with, a specific person, and shall mean a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the person specified.

(2) COMMISSIONER. The Commissioner of Insurance, his or her deputies, or the Insurance Department as appropriate.

(3) CONTROL. The term shall include controlling, controlled by, or under common control with and shall mean the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract other than a commercial contract for goods or nonmanagement services, or otherwise, unless the power is the result of an official position with or corporate office held by the person. Control shall be presumed to exist if any person, directly or indirectly owns, controls, holds with the power to vote, or holds proxies representing five percent or more of the voting securities of any other person. This presumption may be rebutted by a showing made in the manner provided by subsection (k) of Section 27-29-4 that control does not exist in fact. The commissioner may determine, after furnishing all persons in interest notice and opportunity to be heard and making a specific finding of fact to support such determination, that control exists in fact, notwithstanding the absence of a presumption to that effect.

(4) ENTERPRISE RISK. Any activity, circumstance, event, or series of events involving one or more affiliates of an insurer that, if not remedied promptly, is likely to have a material adverse effect upon the financial condition or liquidity of the insurer or its insurance holding company system as a whole, including, but not limited to, anything that would cause the insurer's risk-based capital to fall into company action level as set forth in Section 27-2B-4 or would cause the insurer to be in hazardous financial condition.

(5) GROUP-WIDE SUPERVISOR. The regulatory official authorized to engage in conducting and coordinating group-wide supervision activities who is determined or acknowledged by the commissioner under this chapter to have sufficient significant contacts with the internationally active insurance group.

(6) INSURANCE HOLDING COMPANY SYSTEM. A system which consists of two or more affiliated persons, one or more of which is an insurer.

(7) INSURER. An insurance company as set forth in Section 27-1-2, including, without limitation, any fraternal benefit society, health care service plan, and health maintenance organization, except that it shall not include agencies, authorities, or instrumentalities of the United States, its possessions and territories, the Commonwealth of Puerto Rico, the District of Columbia, or a state or political subdivision of a state.

(8) INTERNATIONALLY ACTIVE INSURANCE GROUP. An insurance holding company system that incudes an insurer registered under Section 27-29-4 that meets all of the following criteria:

a. Premiums are written in at least three countries.

b. The percentage of gross premiums written outside the United States is at least 10 percent of the insurance holding company system's total gross written premiums.

c. 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).

(8)(9) PERSON. An individual, a corporation, a limited liability company, a partnership, an association, a joint-stock company, a trust, an unincorporated organization, or any similar entity or any combination of the foregoing acting in concert, but shall not include any joint venture partnership exclusively engaged in owning, managing, leasing, or developing real or tangible personal property.

(9)(10) SECURITYHOLDER. One who owns any security of such person, including common stock, preferred stock, debt obligations, and other security convertible into, or evidencing, the right to acquire any of the foregoing.

(10)(11) SUBSIDIARY. An affiliate controlled by such person, directly or indirectly, through one or more intermediaries.

(11)(12) VOTING SECURITY. The term shall include any security convertible into, or evidencing, a right to acquire a voting security.

§27-29-7.

(a) All documents, materials, or other information, and copies thereof, in the possession or control of the Department of Insurance that are obtained by or disclosed to the commissioner or any other person in the course of an examination or investigation made pursuant to Section 27-29-6 and all information reported pursuant to paragraphs l. and m. of subdivision (l) of subsection (b) of Section 27-29-3, Section 27-29-4, and Section 27-29-5, and Section 27-29-6.2 shall be confidential by law and privileged, shall not be subject to any open records, freedom of information, sunshine or other public record disclosure laws, and shall not be subject to subpoena. The commissioner may use the documents, materials, and other information in the furtherance of any regulatory or legal action in the course of the commissioner's official duties. The documents, materials, and other information shall not be made public by the commissioner or any other person without the prior written consent of the insurer to which it pertains unless the commissioner determines that the interests of policyholders, shareholders, or the public will be served by the publication thereof, in which event the commissioner may publish all, or any part thereof, in such manner as the commissioner may deem appropriate. Prior to making this determination, the commissioner shall give the insurer and its affiliates who would be affected thereby no less than 10 days' written notice of the opportunity to request a hearing on the matter.

(b) Neither the commissioner nor any person who received documents, materials, or other information while acting under the authority of the commissioner or with whom such documents, materials, or other information are shared pursuant to this chapter shall be permitted or required to testify in any private civil action concerning any confidential documents, materials, or information subject to subsection (a).

(c) In order to assist in the performance of the commissioner's duties, the commissioner:

(1) May share documents, materials, or other information, including the confidential and privileged documents, materials, or information subject to subsection (a), with other state, federal, and international regulatory agencies, with the National Association of Insurance Commissioners and its affiliates and subsidiaries, and with state, federal, and international law enforcement authorities, including members of any supervisory college described in Section 27-29-6.1, provided that the recipient agrees in writing to maintain the confidentiality and privileged status of the document, material, or other information, and has verified in writing the legal authority to maintain confidentiality.

(2) Notwithstanding subdivision (1) above, may share confidential and privileged documents, material, or information reported pursuant to subsection (l) of Section 27-29-4 only with commissioners of states having statutes or regulations substantially similar to subsection (a) and who have agreed in writing not to disclose such information.

(3) May receive documents, materials, or information, including otherwise confidential and privileged documents, materials, or information from the National Association of Insurance Commissioners and its affiliates and subsidiaries and from regulatory and law enforcement officials of other foreign or domestic jurisdictions, and shall maintain as confidential or privileged any document, material, or information received with notice or the understanding that it is confidential or privileged under the laws of the jurisdiction that is the source of the document, material, or information.

(4) Shall enter into written agreements with the National Association of Insurance Commissioners governing sharing and use of information provided pursuant to this chapter consistent with this subsection that shall:

a. Specify procedures and protocols regarding the confidentiality and security of information shared with the National Association of Insurance Commissioners and its affiliates and subsidiaries pursuant to this chapter, including procedures and protocols for sharing by the National Association of Insurance Commissioners with other state, federal, or international regulators.

b. Specify that ownership of information shared with the National Association of Insurance Commissioners and its affiliates and subsidiaries pursuant to this chapter remains with the commissioner and the use of the information by the National Association of Insurance Commissioners is subject to the direction of the commissioner.

c. Require at least 10 days' notice to be given to an insurer whose confidential information in the possession of the National Association of Insurance Commissioners pursuant to this chapter is subject to a request or subpoena to the National Association of Insurance Commissioners for disclosure or production.

d. Require the National Association of Insurance Commissioners and its affiliates and subsidiaries to consent to intervention by an insurer in any judicial or administrative action in which the National Association of Insurance Commissioners and its affiliates and subsidiaries may be required to disclose confidential information about the insurer shared with the National Association of Insurance Commissioners and its affiliates and subsidiaries pursuant to this chapter.

(d) The sharing of information by the commissioner pursuant to this chapter shall not constitute a delegation of regulatory authority or rulemaking, and the commissioner is solely responsible for the administration, execution, and enforcement of this chapter.

(e) No waiver of any applicable privilege or claim of confidentiality in the documents, materials, or information shall occur as a result of disclosure to the commissioner under this section or as a result of sharing as authorized in subsection (c).

(f) Documents, materials, or other information in the possession or control of the National Association of Insurance Commissioners pursuant to this chapter shall be confidential by law and privileged, shall not be subject to open records, freedom of information, sunshine or other public records disclosure laws, shall not be subject to subpoena, and shall not be subject to discovery or admissible in evidence in any private civil action."

Section 3

This act shall become effective January 1, 2020, following its passage and approval by the Governor, or its otherwise becoming law.