02-031-705 Me. Code R. § 4

Current through 2024-46, November 13, 2024

Section 031-705-4 - Contents of Corporate Governance Annual Disclosure

1. The filing entity shall 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. For purposes of this section, governance of the filing entity includes governance at any higher level within the holding company system that exercises direct or indirect operational control over the filing entity.

2. The CGAD shall describe the filing entity's corporate governance framework and structure, including consideration of the following:

A. The Board and the committees that are ultimately responsible for overseeing the domestic insurance carrier and the level(s) at which that oversight occurs (e.g., ultimate control level, intermediate holding company, legal entity). The filing entity shall describe and discuss the rationale for the current Board size and structure;

B. The duties of the Board and each of its significant committees and how they are governed (e.g., bylaws, charters, informal mandates), and how the Board's leadership is structured, including a discussion of the roles of Chief Executive Officer (CEO) and Chair of the Board within the organization; and

C. If the filing entity is not the domestic insurance carrier, the relationship between the filing entity's Board and senior management and the domestic insurance carrier's board and senior management.

3. The filing entity shall describe the policies and practices of the most senior governing entity and significant committees thereof, including a discussion of the following factors:

A. How the qualifications, expertise, and experience of each Board member meet the needs of the filing entity.

B. How an appropriate degree of independence is maintained on the Board and its significant committees.

C. The number of meetings held by the Board and its significant committees over the past year, and a record of director attendance.

D. How the filing entity identifies, nominates, and elects members to the Board and its committees. The discussion should include, for example:

(1) Whether a nominating committee is in place to identify and select candidates;

(2) Whether term limits are placed on directors;

(3) How the election and re-election processes function; and

(4) Whether there is a Board diversity policy, and if so, how it functions.

E. The processes for the Board to evaluate its performance and the performance of its committees, and any recent measures taken to improve performance (including any Board or committee training programs that have been put in place).

4. The filing entity shall describe the policies and practices for directing senior management, including a description of the following factors:

A. Any suitability standards and other processes or practices to determine whether officers and key persons in control functions have the appropriate background, experience, and integrity to fulfill their prospective roles, including:

(1) The specific positions for which suitability standards have been developed and a description of the standards employed; and

(2) How the filing entity monitors and evaluates changes in an officer's or key person's suitability, and any such changes that the filing entity has identified.

B. The filing entity's code of business conduct and ethics, including standards for:

(1) Compliance with laws, rules, and regulations; and

(2) Proactive reporting of any illegal or unethical behavior.

C. The filing entity'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 shall include sufficient detail to allow the Superintendent to understand how the organization ensures that compensation programs do not encourage or reward excessive risk taking. Elements to be discussed may include, for example:

(1) The Board's role in overseeing management compensation programs and practices;

(2) The various elements of compensation awarded in the compensation programs and how the amount of each element of compensation paid is determined and calculated;

(3) How compensation programs are related to both company and individual performance over time;

(4) Whether compensation programs include risk adjustments and how those adjustments are incorporated into the programs for employees at different levels;

(5) Any clawback provisions built into the programs to recover awards or payments if the performance measures upon which they are based are restated or otherwise adjusted;

(6) Any other factors relevant in understanding how the filing entity monitors its compensation policies to determine whether its employee incentives are meeting its risk management objectives.

D. The filing entity's plans for CEO and senior management succession.

5. The filing entity shall describe the processes by which the Board, its committees, and senior management ensure an appropriate amount of oversight to the critical risk areas impacting the insurance carrier's business activities, including a discussion of:

A. How oversight and management responsibilities are delegated between the Board, its committees and senior management;

B. How the Board is kept informed of the insurance carrier's strategic plans, the associated risks, and steps that senior management is taking to monitor and manage those risks;

C. How reporting responsibilities are organized for each critical risk area. The description should allow the Superintendent to understand the frequency at which information on each critical risk area is reported to and reviewed by senior management and the Board. This description may include, for example, the following critical risk areas of the insurance carrier:

(1) Risk management processes. If the filing entity conducts an Own Risk and Solvency Assessment (ORSA), it may incorporate by reference the ORSA Summary Report filed under 24-A M.R.S. §§ 222(8) (B-3) or 423-F, or the substantially similar law of another state;

(2) Actuarial function;

(3) Investment decision-making processes;

(4) Reinsurance decision-making processes;

(5) Business strategy/finance decision-making processes;

(6) Compliance function;

(7) Financial reporting/internal auditing; and

(8) Market conduct decision-making processes.

02-031 C.M.R. ch. 705, § 4