Article

Pennsylvania adopts Corporate Governance Annual Disclosure (CGAD) filing requirement: a quick guide for your journey to compliance

Nov. 5, 2018 · Authored by John Romano, Rachel Schmoyer

As of Oct. 24, 2018, Pennsylvania joined the 25 other states in enacting the National Association of Insurance Commissioners (NAIC) Corporate Governance Annual Disclosure Model Act (Act) as part of passing Senate Bill (SB) 1205. The Act will require insurers to submit an annual filing regarding their corporate governance structure, including any policies and practices to better provide the insurance commissioner with a general understanding of the company’s corporate governance framework. The filing is due on June 1, each calendar year, with the first filing due June 1, 2020, and must be signed by the chief executive officer (CEO) or corporate secretary attesting to the implementation of the corporate governance practices at the company.

Unlike other model laws and specific state statues, (e.g. Own Risk and Solvency Assessment (ORSA) filing, internal audit requirements, management’s report of internal control over financial reporting, etc.), there are no exemptions or thresholds regarding size or type. In addition, the CGAD is intended to be more narrative in nature where the company has the opportunity to provide to the commissioner details regarding the governance framework and structure, including:

• Policies and practices of the board
• Board committees and senior management
• Oversight over critical risk areas

It is important to note that SB 1205 includes considerations of organization complexity, licensing status and premium volume when regulators will evaluate the extent and thoroughness of completion of the CGAD and the need to retain third party consultants to assist in evaluation. The SB 1205 also includes provisions for duplication of information. Therefore, you can cross reference if similar information has already been provided in other proxy statements, federal or state filings provided to the Pennsylvania department.

Included below is a high level summary of those requirements and best practice recommendations for implementation based on other insurance organizations that Baker Tilly has provided advisory and audit services and performed regulatory examinations on behalf of various state insurance departments:

Requirements for the board

• Roles and responsibilities of board and various board committees, how they are governed (i.e., bylaw, charter, informal mandate, etc.) and the rational for the size of the board