(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;
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