A6007

An Act concerning the corporate governance of insurers and supplementing Title 17 of the Revised Statutes.

Be It Enacted by the Senate and General Assembly of the State of New Jersey:

1. The purpose of this act is to:

a. Provide the Commissioner of Banking and Insurance a summary of an insurer’s 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.

b. Outline the requirements for completing a corporate governance annual disclosure with the commissioner.

c. 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’s 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.

2. Nothing in this act shall be construed to prescribe or impose corporate governance standards and internal procedures beyond that which is required under applicable State corporate law. Notwithstanding the foregoing, nothing in this act shall be construed to limit the commissioner’s authority, or the rights or obligations of third parties, under applicable law, including, but not limited to, the authority under P.L.1993, c.236 (C.17:23-20 et seq.), section 5 of P.L.1970, c.22 (C.17:27A-5), and sections 7 and 8 of P.L.2014, c.81 (C.17:27A-5.1 and C.17:27A-5.2).

3. The requirements of this act shall apply to all insurers domiciled in this State, including licensed organized delivery systems and reciprocal insurance exchanges.

4. As used in this act:

“Commissioner” means the Commissioner of Banking and Insurance.

“Corporate governance annual disclosure” or “disclosure” means a confidential report filed by the insurer or insurance group made in accordance with the requirements of this act.

“Department” means the Department of Banking and Insurance.

“Insurance group” means those insurers and affiliates included within an insurance holding company system as defined in section 1 of P.L.1970, c.22 (C.17:27A-1).

“Insurer” shall have the same meaning as set forth in section 1 of P.L.1970, c.22 (C.17:27A-1 et seq.), and shall include any insurer or entity subject to rehabilitation or liquidation pursuant to P.L.1975, c.113 (C.17:30C-1 et seq.) and P.L.1992, c.65 (C.17B:32-31 et seq.), including licensed organized delivery systems and reciprocal insurance exchanges.

“NAIC” means the National Association of Insurance Commissioners.

“ORSA Summary Report” means the report filed in accordance with sections 46 through 56 of P.L.2014, c.81 (C.17:23-27 through 37).

5. a. An insurer, or the insurance group of which the insurer is a member, shall, no later than June 1 of each calendar year, submit to the commissioner a corporate governance annual disclosure that contains the information described in subsection b. of section 6 of this act. Notwithstanding any request from the commissioner made pursuant to subsection c. of this section, 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, or group-wide supervisor as defined by section 8 of P.L.2014, c.81 (C.17:27A-5.2), if applicable, for the insurance group, in accordance with the laws of that state, as determined by the procedures outlined in the most recent Financial Analysis Handbook adopted by the NAIC.

b. The disclosure 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 insurer’s board of directors or the appropriate committee thereof.

c. An insurer not required to submit a disclosure under this section shall do so upon the commissioner’s request.

d. For purposes of completing the disclosure, 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, depending upon how the insurer or insurance group has structured its system of corporate governance. The insurer or insurance group is encouraged to make the 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. 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 disclosure and any additional requests for information shall be made through the lead state, or group-wide supervisor as defined by section 8 of P.L.2014, c.81 (C.17:27A-5.2), if applicable, as determined by the procedures within the most recent Financial Analysis Handbook adopted by the NAIC.

f. Insurers providing information substantially similar to the information required by this act in other documents provided to the commissioner, including proxy statements filed in conjunction with registration statements filed pursuant to section 3 of P.L. 1970, c. 22 (C. 17:27A-3), known as “Form B filings,” or other state or federal filings provided to this department shall not be required to duplicate that information in the disclosure, but shall only be required to cross reference the document in which the information is included.

6. a. The insurer or insurance group shall have discretion over the responses to the disclosure inquiries, provided the disclosure shall contain the material information necessary to permit the commissioner to gain an understanding of the insurer's or 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, the reporting or information system or controls implementing those policies.

b. Notwithstanding subsection a. of this section, the disclosure shall be prepared consistent with rules promulgated by the commissioner. Documentation and supporting information shall be maintained and made available upon examination or upon request of the commissioner.

7. a. Documents, materials or other information including the disclosure, in the possession or control of the department that are obtained by, created by or disclosed to the commissioner or any other person under this act, shall be recognized by this State as being proprietary and to contain trade secrets. All such documents, materials or other information shall be confidential by law and privileged, shall not be subject to disclosure by the commissioner pursuant to P.L.1963, c.73 (C.47:1A-1 et seq.), shall not be subject to subpoena, and shall not be subject to discovery from the commissioner or admissible in evidence in any private civil action. However, the commissioner shall be authorized to use the documents, materials or other information in the furtherance of any regulatory or legal action brought as a part of the commissioner’s official duties. 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 disclosure-related information pursuant to subsection c. of this section to assist in the performance of the commissioner’s regular duties.

b. Neither the commissioner nor any person who received documents, materials or other disclosure-related information, through examination or otherwise, while acting under the authority of the commissioner, or with whom those documents, materials or other information are shared pursuant to this act shall be subject to subpoena, permitted or required to testify in any private civil action concerning any confidential documents, materials, or information subject to subsection a. of this section.

c. In order to assist in the performance of the commissioner’s regulatory duties, the commissioner may:

(1) upon request, share documents, materials or other disclosure-related information including the confidential and privileged documents, materials or information subject to subsection a. of this section, including proprietary and trade secret documents and materials. with other state, federal and international financial regulatory agencies, including members of any supervisory college as provided in section 7 of P.L. 2014, c. 81 (C. 17:27A-5.1), with the NAIC, and with third party consultants pursuant to section 8 of this act, provided that the recipient agrees in writing to maintain the confidentiality and privileged status of the disclosure-related documents, material or other information and has verified in writing the legal authority to maintain confidentiality; and

(2) receive documents, materials or other disclosure-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 provided in section 7 of P.L.2014, c. 81 (C. 17:27A-5.1), 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 act shall not constitute a delegation of regulatory authority or rulemaking, and the commissioner is solely responsible for the administration, execution and enforcement of the provisions of this act.

e. No waiver of any applicable privilege or claim of confidentiality in the documents, proprietary and trade-secret materials or other disclosure-related information shall occur as a result of disclosure of disclosure-related information or documents to the commissioner under this section or as a result of sharing as authorized in this act.

8. a. The commissioner may retain, at the insurer's expense, third-party consultants, including attorneys, actuaries, accountants and other experts not otherwise a part of the commissioner's staff as may be reasonably necessary to assist the commissioner in reviewing the disclosure and related information or the insurer's compliance with this act.

b. Any persons retained under subsection a. of this section 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 act.

e. A written agreement with the NAIC or a third-party consultant governing sharing and use of information provided pursuant to this act shall contain the following provisions and expressly require the written consent of the insurer prior to making public information provided under this act:

(1) Specific procedures and protocols for maintaining the confidentiality and security of disclosure-related information shared with the NAIC or a third-party consultant pursuant to this act;

(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 disclosure-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 disclosure-related information shared with the NAIC or a third-party consultant remains with the department and the NAIC’s or third-party consultant’s use of the information 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 act 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 disclosure-related information; and

(6) A requirement that the NAIC or a third-party consultant to 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 act.

9. Any insurer failing, without just cause, to timely file the disclosure as required in this act shall be required, after notice and hearing, to pay a penalty of up to $5,000 for each day’s delay, to be recovered by the commissioner.

10. The commissioner may promulgate regulations pursuant to the “Administrative Procedure Act,” P.L.1968, c.410 (C.52:14B-1 et seq.) and issue such orders as shall be necessary to carry out the provisions of this act.

11. If any provision of this act, other than section 7, or the application thereof to any person or circumstance, is held invalid, such determination shall not affect the provisions or applications of this act which can be given effect without the invalid provision or application, and to that end the provisions of this act, with the exception of section 7, are severable.

12. The requirements of this act shall become effective immediately upon enactment. The first filing of the disclosure shall be in 2020.

13. This act shall take effect immediately and shall be retroactive to January 1, 2020.

STATEMENT

This bill requires an insurer or insurance group to submit an annual report to the Commissioner of Banking and Insurance summarizing its corporate governance structure, policies and practices.

No later than June 1 of each calendar year, insurers and insurer groups domiciled in New Jersey will be required to file a corporate governance annual disclosure that contains the material information necessary to permit the commissioner to gain an understanding of the insurer’s or group’s corporate governance structure, policies, and practices. Although the corporate governance annual disclosure will be prepared consistent with rules promulgated by the commissioner, the insurer or insurance group will retain discretion regarding the appropriate format for providing the information required. Nothing in the bill should be construed to prescribe or impose corporate governance standards and internal procedures.

The documents, materials or other information including the corporate governance annual disclosure will be confidential and will not be subject to the open public records law, subpoena, discovery, and the information will not be admissible in evidence in any private civil action.

The commissioner may retain, at the insurer’s expense, third-party consultants as may be reasonably necessary to assist the commissioner in reviewing the corporate governance annual disclosure or the insurer’s compliance with the bill’s provisions.

An insurer that fails, without just cause, to timely file the corporate governance annual disclosure as required, must pay, after notice and hearing, a penalty of up to $5,000 for each day’s delay.

The provisions of the bill, except for the confidentiality provisions, are severable if found to be invalid.

The Department of Banking and Insurance is required to have this legislation in place as part of its accreditation review by the National Association of Insurance Commissioners (NAIC). It is based on the NAIC Corporate Governance Annual Disclosure Model Act and must be enacted by January 1, 2020 for compliance with accreditation standards.