Article 10.8 - Corporate Governance Disclosure Act

California Insurance Code — §§ 936.1-936.9

Sections (9)

Added by Stats. 2015, Ch. 213, Sec. 1. (AB 553) Effective August 17, 2015.

(a)The purpose of this article is to provide the Insurance Commissioner 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 and outline the requirements for completing a corporate governance annual disclosure with the Insurance Commissioner. The requirements of this article shall apply to all insurers domiciled in this state.

(b)The Legislature finds and declares that the Corporate Governance Annual Disclosure and related information will contain confidential and sensitive information related to an insurer or insurance group’s internal

operations and proprietary and trade secret information that, if made public, could potentially cause the insurer or insurance group competitive harm or disadvantage.

(c)This article shall not 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, this article shall not be construed to limit the commissioner’s authority or the rights or obligations of third parties, under Article 4 (commencing with Section 729) relating to the examination of insurers.

§ 936.2

Added by Stats. 2015, Ch. 213, Sec. 1. (AB 553) Effective August 17, 2015.

For the purposes of this article, the following definitions apply:

(a)“Corporate Governance Annual Disclosure (CGAD)” means a confidential report filed by the insurer or insurance group made in accordance with the requirements of this article.

(b)“Insurance group” means those insurers and affiliates included within an insurance holding company system as defined in subdivision (e) of Section 1215 (Insurance Holding Company System Regulatory Act).

(c)“Insurer” has the same meaning as set forth in subdivision (f) of Section 1215, 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.

(d)An “ORSA Summary Report” means the report filed in accordance with subdivision (e) of Section 935.2.

(e)“Corporate Governance Annual Disclosure Model Regulation” means the current version of the Corporate Governance Annual Disclosure Model Regulation developed and adopted by the National Association of Insurance Commissioners (NAIC) and as amended from time to time. A change in the Corporate Governance Annual Disclosure Model Regulations shall be effective on the January 1 following the calendar year in which the changes have been adopted by the NAIC.

§ 936.3

Added by Stats. 2015, Ch. 213, Sec. 1. (AB 553) Effective August 17, 2015.

(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 CGAD that contains the information described in subdivision (b) of Section 936.5. Notwithstanding any request from the commissioner made pursuant to subdivision (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 therein 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 CGAD under this section shall submit a CGAD upon the commissioner’s request.

(d)(1) For purposes of completing the CGAD, the insurer or insurance group may provide information regarding corporate governance at one or all of the following: 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.

(2)The insurer or insurance group is encouraged to make the CGAD disclosures at one of the following levels:

(A)At the level at which the insurer’s or insurance group’s risk appetite is determined.

(B)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.

(C)At the level at which legal liability for failure of general corporate governance duties would be placed.

(3)If the insurer or insurance group determines the level of reporting based on the criteria listed in paragraph (2), it shall indicate which of the three criteria was used to determine

the level of reporting and explain any subsequent changes in the 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 referenced in subdivision (a).

(f)Insurers providing information substantially similar to the information required by this article 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, 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.

§ 936.4

Added by Stats. 2015, Ch. 213, Sec. 1. (AB 553) Effective August 17, 2015.

The commissioner may, upon notice and opportunity for all interested parties to be heard, issue those rules, regulations, and orders as may be necessary to carry out the provisions of this article. Those rules and regulations shall be adopted, amended, or repealed in accordance with Administrative Procedure Act Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code.

§ 936.5

Added by Stats. 2015, Ch. 213, Sec. 1. (AB 553) Effective August 17, 2015.

(a)The insurer or insurance group shall have discretion over the responses to the CGAD inquiries, provided the CGAD 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. The commissioner may request additional information that he or she deems material and necessary to provide him or her with a clear understanding of the corporate governance policies, the reporting or information system, or controls implementing those policies.

(b)Notwithstanding subdivision (a), the insurer or insurer group shall prepare the CGAD consistent with the NAIC Corporate Governance Annual Disclosure

Model Regulation, subject to the requirements of this article. Documentation and supporting information shall be maintained and made available upon examination or upon request of the commissioner.

§ 936.6

Amended by Stats. 2021, Ch. 615, Sec. 303. (AB 474) Effective January 1, 2022. Operative January 1, 2023, pursuant to Sec. 463 of Stats. 2021, Ch. 615.

(a)(1) Documents, materials, or other information, including the CGAD, 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 article are recognized by this state as being proprietary and to contain trade secrets. All those documents, materials, or other information shall be confidential by law and privileged, shall not be subject to disclosure by the commissioner pursuant to the California Public Records Act (Division 10 (commencing with Section 7920.000) of Title 1 of the Government Code), 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 if obtained from the commissioner in any manner.

(2)However, the commissioner is 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 disclose or make public the documents, materials, or other information without the prior written consent of the insurer.

(3)This section shall not 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 subdivision (c) to assist in the performance of the commissioner’s regulatory duties.

(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 those documents, materials, or other information are shared pursuant to this article shall be permitted or required to testify in any private civil action concerning any confidential documents, materials, or information described in subdivision (a).

(c)In order to assist in the performance of the commissioner’s regulatory duties, the commissioner may do both of the following:

(1)Upon request, share documents, materials, or other CGAD-related information, including the confidential and privileged documents, materials, or information described in subdivision

(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 1215.7 (Insurance Holding Company System Regulatory Act), with the NAIC, and with third-party consultants pursuant to Section 936.7, provided 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.

(2)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 1215.7 (Insurance Holding Company System Regulatory Act), 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 documents, materials, or information.

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

(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 that CGAD-related information or those documents to the commissioner under this section or as a result of sharing as authorized in this article.

§ 936.7

Added by Stats. 2015, Ch. 213, Sec. 1. (AB 553) Effective August 17, 2015.

(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 CGAD and related information or the insurer's compliance with this article.

(b)Any person retained under subdivision (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 in writing, 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 article.

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

(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 article.

(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, 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 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 article.

§ 936.8

Added by Stats. 2015, Ch. 213, Sec. 1. (AB 553) Effective August 17, 2015.

Any insurer or insurer group failing, without just cause, to timely file the CGAD as required in this article shall be subject to the late filing fees set forth in Section 924. The commissioner may reduce the penalty if the insurer or insurer group demonstrates to the commissioner that the imposition of the penalty would constitute a financial hardship to the insurer or insurer group.

§ 936.9

Added by Stats. 2015, Ch. 213, Sec. 1. (AB 553) Effective August 17, 2015.

The provisions of this article, other than Section 936.6, are severable. If any provision of this article, other than Section 936.6, or its application is held invalid, that invalidity shall not affect other provisions or applications that can be given effect without the invalid provision or application.