Section 630.10  Purpose

 

The purpose of this Part is to set forth the procedures for filing, and the required contents of, the Corporate Governance Annual Disclosure (CGAD) deemed necessary by the Director to carry out the provisions of the Corporate Governance Annual Disclosure Law [215 ILCS 5/Art. VIII⅓].

 

Section 630.20  Definitions

 

"Act" means the Corporate Governance Annual Disclosure Law [215 ILCS 5/Art. VIII⅓].

 

"Code" means the Illinois Insurance Code [215 ILCS 5].

 

"Department" means the Illinois Department of Insurance.

 

"Director" means the Director of the Illinois Department of Insurance.

 

"Insurance group" has the meaning ascribed in the Act. 

 

"Insurer" has the meaning ascribed in the Act.

 

"Senior management" means any corporate officer responsible for reporting information to the board of directors at regular intervals or providing this information to shareholders or regulators and shall include, but not be limited to, the Chief Executive Officer (CEO), Chief Financial Officer (CFO), Chief Operations Officer (COO), Chief Procurement Officer (CPO), Chief Legal Officer (CLO), Chief Information Officer (CIO), Chief Technology Officer (CTO), Chief Revenue Officer (CRO), Chief Visionary Officer (CVO), or any other "C" level executive.

 

Section 630.30  Filing Procedures

 

a)         An insurer, or the insurance group of which the insurer is a member, that is required to file a CGAD by the Act shall submit to the Director a CGAD that meets the requirements of the Act and contains the information described in Section 630.40 no later than June 1 of each year. 

 

b)         The insurer or insurance group shall have discretion regarding the appropriate format for providing the information required by these regulations and is permitted to customize the CGAD to provide the most relevant information necessary to permit the Director to gain an understanding of the corporate governance structure, policies and practices utilized by the insurer or insurance group.

 

c)         Each year following the initial filing of the CGAD, the insurer or insurance group shall file an amended version of the previously filed CGAD indicating where changes have been made. If no changes were made in the information or activities reported by the insurer or insurance group, the filing should so state.

 

d)         The insurer or insurance group shall be as descriptive as possible in completing the CGAD, with inclusion of attachments or example documents that are used in the governance process.

 

e)         An insurer or insurance group may reference other existing documents (e.g., Own Risk and Solvency Assessment (ORSA) Summary Report, Holding Company Form B or F Filings, Securities and Exchange Commission (SEC) Proxy Statements, foreign regulatory reporting requirements) if the documents provide information that is comparable to the information described in Section 630.40. The insurer or insurance group shall clearly reference the location of the relevant information within the CGAD and attach the referenced document if it is not already filed or available to the regulator.

 

Section 630.40  Contents of Corporate Governance Annual Disclosure

 

a)         The CGAD shall describe the insurer's or insurance group's corporate governance framework and structure, including consideration of the following:

 

1)         The Board and its various committees ultimately responsible for overseeing the insurer or insurance group and the levels at which that oversight occurs (e.g., ultimate control level, intermediate holding company, legal entity). The insurer or insurance group shall 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 (e.g., bylaws, charters, informal mandates), as well as how the Board's leadership is structured, including a discussion of the roles of the CEO and Chairman of the Board within the organization.

 

b)         The insurer or insurance group shall 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, for example:

 

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; and

 

D)        Whether a Board diversity policy is in place and, if so, how it functions; and

 

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).

 

c)         The insurer or insurance group shall describe the policies and practices for directing senior management, including a description of the following factors:

 

1)         Any processes or practices (i.e., suitability standards) used 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 those 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 shall include sufficient detail to allow the Director to understand how the organization ensures that compensation programs do not encourage and/or reward excessive risk taking. Elements to be discussed may include, but are not limited to:

 

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

 

B)        The various elements of compensation awarded in the insurer's or insurance group's compensation programs and how the insurer or insurance group determines and calculates the amount of each element of compensation paid;

 

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

 

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

 

E)        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; and

 

F)         Any other factors relevant in understanding how the insurer or insurance group monitors its compensation policies to determine whether its risk management objectives are met by incentivizing its employees.

 

4)         The insurer's or insurance group's plans for CEO and senior management succession.

 

d)         The insurer or insurance group 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 insurer's business activities, including a discussion of:

 

1)         How oversight and management responsibilities are delegated among the Board, its committees and senior management;

 

2)         How the Board is kept informed of the insurer's strategic plans, the associated risks, and steps that senior management is taking to monitor and manage those risks;

 

3)         How reporting responsibilities are organized for each critical risk area.

The description should allow the Director 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, but is not limited to, the following critical risk areas of the insurer:

 

A)        Risk management processes (an ORSA Summary Report filer may refer to its ORSA Summary Report pursuant to Article VIII¼ of the Code);

 

B)        Actuarial function;

 

C)        Investment decision-making processes;

 

D)        Reinsurance decision-making processes;

 

E)        Business strategy/finance decision-making processes;

 

F)         Compliance function;

 

G)        Financial reporting/internal auditing; and

 

H)        Market conduct decision-making processes.