Insurance Company Corporate Governance Workshop September 22, 2015 Harrisburg, PA
Insurance Company Corporate Governance Workshop Table of Contents A. Agenda B. Speaker Presentation Materials C. Deputy Insurance Commissioner Stephen J. Johnson’s 12/16/2014 Memo to Insurers: Developments in Financial Regulatory Items for 2015 D. NAIC Materials: • White Paper on High-Level Corporate Governance Principles for Use in U.S. Insurance Regulation (Not Formally Adopted) • Proposed Responses to a Comparative Analysis of Existing U.S. Corporate Governance Requirements • Corporate Governance Annual Disclosure Model Act • Corporate Governance Annual Disclosure Model Regulation • Form F – Enterprise Risk Report • Own Risk and Solvency Assessment (ORSA) Guidance Manual • Own Risk and Solvency Assessment (ORSA) Feedback Pilot Projects Observations: 2012-2013 Feedback 2014 Feedback E. Speaker Biographies
Insurance Company Corporate Governance Workshop September 22, 2015 Agenda 8:30 – 9:00 a.m. Registration 9:00 a.m. Welcome / Introductions Joel C. Hopkins, Esq. Member - Insurance Practice of Saul Ewing LLP 9:05 – 9:35 a.m. The New World Order in Insurance Regulation: What Boards and Management Need to Know & Why; What the Regulator is Expecting Stephen J. Johnson, CPA Deputy Insurance Commissioner, Office of Corporate & Financial Regulation, Pennsylvania Insurance Department 9:35 – 10:00 a.m. Corporate Governance Annual Disclosure: What All Insurers Need to Know and Should Be Doing Now Frances R. Roggenbaum, Esq. Co-Chair - Insurance Practice of Saul Ewing LLP 10:00 – 11:00 a.m. Keys to an Effective Board – Education, Selection & Succession • Board Education: It’s Not Just Duty of Care Constance B. Foster, Esq. Member - Insurance Practice of Saul Ewing LLP • The Nominating & Compensation Committee – The Cornerstone of Corporate Governance David G. DelBiondo, CPA Regulatory Specialist, INS Regulatory Insurance Services, Inc. • Assuring Leadership for the Future: The Board’s Role in Succession Planning Nancy Dering Mock, President, Nancy Dering, Inc. 11:00 – 11:15 a.m. BREAK 11:15 – Noon The Board’s Role in Risk Management & ERM G. Lawrence Buhl, CPA Retired Audit Partner at Ernst & Young Noon – 12:30 p.m. Q&A Session with Regulators • Stephen J. Johnson, CPA, Pennsylvania Insurance Department • Kimberly A. Rankin, Director, Bureau of Company Licensing & Financial Analysis, Pennsylvania Insurance Department • Annette B. Szady, CPA, Director, Bureau of Financial Examinations, Pennsylvania Insurance Department 12:30 – 12:45 p.m. Concluding Thoughts From Your Regulator: Boards Can Never Fall Asleep Stephen J. Johnson, CPA, Pennsylvania Insurance Department 12:45 p.m. Lunch
Insurance Company Corporate Governance Workshop Stephen J. Johnson, CPA, Deputy Insurance Commissioner September 22, 2015 The New World Order in Insurance Regulation: What Boards and Management Need to Know and Why What the Regulator is Expecting Office of Corporate and Financial Regulation - 1 -
Insurance Company Corporate Governance Workshop Stephen J. Johnson, CPA, Deputy Insurance Commissioner September 22, 2015 This presentation is all about change – How many years did it take radio to reach 50M users? 38 years – How many years did it take Google to reach 50M users? 6 years – How many years did it take Facebook to reach 50M users? 3.5 years – How many years did it take iPad to reach 50M users? 1.5 years – How many years did it take Google + to reach 50M users? 88 days Office of Corporate and Financial Regulation - 2 -
Insurance Company Corporate Governance Workshop Stephen J. Johnson, CPA, Deputy Insurance Commissioner September 22, 2015 What is Happening in the Regulatory World – There have been seismic shifts in regulatory approach by the NAIC and Insurance Departments – Retrospective Prospective – Company Enterprise – Financial Statement Governance – Rules Principles – Regulators are expecting more Board involvement in this new regulatory approach – Is your management ready? Office of Corporate and Financial Regulation - 3 -
Insurance Company Corporate Governance Workshop Stephen J. Johnson, CPA, Deputy Insurance Commissioner September 22, 2015 What are we trying to do differently: • Group vs. Legal Entity Supervision • Corporate Governance • Risk Management Enterprise Level Legal Entity Level Inter-Connectivity Risks Control Environment • Capital Management • Strategic Management (Prospective Risk) • Verification of all of this-the Risk Focus Exam Process Office of Corporate and Financial Regulation - 4 -
Insurance Company Corporate Governance Workshop Stephen J. Johnson, CPA, Deputy Insurance Commissioner September 22, 2015 Have you ever read the • NAIC’s White Paper on High Level Corporate Governance Principles • NAIC’s Comparative Analysis of Existing U.S. Corporate Governance Requirements • NAIC’s Model Corporate Governance Manual Disclosure Model Act and Model Regulation • Exhibits L & M on the NAIC’s Financial Examiners Handbook Exhibit L – Branded Risk Classification Exhibit M- Understanding the Corporate Governance Structure Office of Corporate and Financial Regulation - 5 -
Insurance Company Corporate Governance Workshop Stephen J. Johnson, CPA, Deputy Insurance Commissioner September 22, 2015 • Form F – Enterprise Risk Report • NAIC’s Own Risk and Solvency Assessment Guidance Manual • NAIC’s Own Risk and Solvency Assessment Feedback Pilot Projects Observations Office of Corporate and Financial Regulation - 6 -
Insurance Company Corporate Governance Workshop Stephen J. Johnson, CPA, Deputy Insurance Commissioner September 22, 2015 What are Regulators Looking at Now – Corporate Governance – Group level as well as Legal entity level NAIC’s Model Corporate Governance Annual Disclosure Model Act and Regulation (my hope is to be live 1/1/2016) Interviews with Chairman of the Board and Head of Audit Committee as part of Financial Examinations Importance of Audit Committee – Enterprise Risk Management (ERM) How does the process work? Is it effective? Is it used by Management and Boards? ERM is Scalable Prospective Risks “Risk Management became Risk Justification” Office of Corporate and Financial Regulation - 7 -
Insurance Company Corporate Governance Workshop Stephen J. Johnson, CPA, Deputy Insurance Commissioner September 22, 2015 What are Regulators Looking at Now – Own Risk and Solvency Assessment (ORSA) NAIC Guidance Manual NAIC Pilot Program NAIC Model Law is live as of 1/1/2015 in PA – Control Environment Board’s need to take on more responsibility Effective or not Boards need to make certain representations to Insurance Departments within Amended Holding Company Law Internal Audit Function Requirement (Revisions to NAIC’s Model CPA Audit Regulation) Office of Corporate and Financial Regulation - 8 -
Insurance Company Corporate Governance Workshop Stephen J. Johnson, CPA, Deputy Insurance Commissioner September 22, 2015 What are Regulators Looking at Now – Capital Management How is this done by Management and Boards Effective or not Group Capital (ORSA) – Strategic Management Does the Board have a plan? Prospective Risks Office of Corporate and Financial Regulation - 9 -
Insurance Company Corporate Governance Workshop Stephen J. Johnson, CPA, Deputy Insurance Commissioner September 22, 2015 Why are Regulators Doing This? •It is a better regulatory process-looking out of the front of the car window (prospective risk) then looking out of the back window. •AIG-Reputational Risk/Group Risk •My International Friends (EU, IAIS, G-20) Office of Corporate and Financial Regulation - 10 -
Insurance Company Corporate Governance Workshop Stephen J. Johnson, CPA, Deputy Insurance Commissioner September 22, 2015 What Boards Should Be Doing About All This Change •Get educated •Set up a Risk Committee of the Board •Should we hire or designate a Chief Risk Officer (CRO Council of North America) •Is the Board receiving proper Risk Summary Reports from Management Office of Corporate and Financial Regulation - 11 -
Insurance Company Corporate Governance Workshop Stephen J. Johnson, CPA, Deputy Insurance Commissioner September 22, 2015 What Boards Should Be Doing About All This Change (Cont’d.) •How does the Board know that the Company’s ERM System is working AIG-Derivatives operation JPMorgan Chase $2B trading loss (Now $5.8B) UBS-Rogue Trader •How do we learn from the ERM failure? Office of Corporate and Financial Regulation - 12 -
Insurance Company Corporate Governance Workshop Stephen J. Johnson, CPA, Deputy Insurance Commissioner September 22, 2015 What Boards Should Be Doing About All This Change (Cont’d.) •Boards need more individuals with an Insurance Regulatory Background- Where do we find them? •Should the CEO and Chairman of the Board be split roles? •Is your Board receiving updates on Regulatory Issues (Regulatory Risk)? •Has your Board ever thought about inviting your Domestic Regulatory to one of your Board Meetings? Office of Corporate and Financial Regulation - 13 -
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