Form B . A new provision in the Holding Company Registration filing (Form B) is required pursuant to §1635 (formerly § 1654) which requires a statement that the insurer’s Board of Directors oversees Corporate Governance and Internal Controls and that the insurer’s Officers or Senior Management have approved, implemented, and continue to maintain and monitor Corporate Governance and Internal Control procedures. This last sentence must be included in the Form B and obviously must be truthful and set forth as an item in the Form B statement. Not only must the name of the insurer be the first item in the Form B (as always) but the capital structure, general financial condition, ownership and management of the insurer and any person controlling the insurer must be included also. This is new. The management and person controlling the insurer is generally set forth in item 3 but it is new to set forth the “capital structure, general financial condition” and “management of the insurer” in the Form B. I assume this latter provision relating to the “management” of the insurer would require a statement if the insurer has a management agreement with any third party.
BOARD OF DIRECTORS AND COMMITTEES
The most serious change in the Holding Company Act that will affect most Oklahoma domestic insurers is set forth at §1636 of Title 36. This provision states that not less than one-third (1/3) of the Directors of a domestic insurer and not less than one-third (1/3) of the members of each committee of the Board of Directors of any domestic insurer, shall be persons who are not officers or employees of the insurer or of any entity controlling, controlled by, or under common control with the insurer and who are not beneficial owners of a controlling interest in the voting stock of the insurer or entity. Additionally, at least one such “nonaffiliated” person with the domestic insurer must be included in any quorum for the transaction of business at the meeting of the Board of Directors or any committee thereof. (See §1636 (C) (3)). This “disinterested” 1/3 of the Board of Directors will drastically affect smaller insurers who are privately or family owned unless a waiver is obtained.
The Nominating Committee and the Compensation Committee are required to be comprised solely of disinterested Board members who are not employees or officers of the insurer or of any entity who controls the insurer. (see §1636 (C) (4)). (The provisions above regarding Directors and the Nominating and Compensation committee shall not apply to a domestic insurer if the insurer has a mutual insurance holding company or is a publicly held corporation that has a Board of Directors and committees that meet the requirements set forth).
REQUEST FOR WAIVER
36 O.S. §1636 (C) (6) sets forth a provision for an insurer to make application to the Commissioner for a waiver from the requirements of the 1/3 disinterested composition of the Board and the further even more restrictive mandates for the Nominating Committee and Compensation Committee. This waiver may be requested if the insurer has annual direct written and assumed premium (excluding premiums reinsured with the federal crop insurance corporation and federal flood program), of less than three hundred million dollars ($300,000,000). As I read that statute anyone may make a request for a waiver from the two provisions set forth above (1/3 Disinterested directors and all disinterested directors comprising the Nominating and Compensation Committee) if the insurer has less than three hundred million dollars ($300,000,000) in annual direct written and assumed premium. Additionally, the statute provides that an insurer “may also make application” to the Commissioner for a waiver from the requirement of this “Disinterested directors” subsection based upon “unique circumstances”. The statute goes on to state that the Commissioner may consider various factors including but not limited to, “the type of business entity, volume of business written, availability of qualified Board members, or the ownership or organizational structure of the entity.”
Comment: This additional “unique circumstances” basis for a waiver could include that the insurer is a family owned company and that the family has built the company, invested their money in the company and consequently it is difficult to find outside Directors. The insurer could list its AM Best Rating, if any, or any other factors that prove reflect that the management of the insurer has been solid, such as the fact that the company has grown, that the last exam report had no comments of any consequence or anything else that might be pertinent to the Commissioner granting a Waiver.] I read the statute to state that the “unique circumstances” filing is a separate opportunity to request a waiver over and above the three hundred million ($300,000,000) annual direct written and assumed premium basis; consequently, an insurer really have two opportunities to state its case and obtain a waiver from the new statutory requirement that a third of the Board must be disinterested Directors and that all of the Nominating Committee and Compensation Committee must be comprised of disinterested Directors.
These are the pertinent changes in the new Holding Company Act, but the amendatory provisions further provide bolstering of the Department’s authority with regard to affiliate agreements and any inter-company agreements with subsidiaries, affiliates, or parent corporations. The NAIC has really insisted on expanding review by the Insurance Departments of agreements that an insurer enters with affiliates. This amendatory Holding Company Act even gives the Department the authority to go into the insurer’s Holding Company and review financial information and operations of the Holding Company.
The Oklahoma Insurance Department has not yet adopted a “form” of the request for waiver but I have drafted and filed many waiver requests and the Department has granted them almost immediately based upon the insurer’s premium being under three hundred million ($300,000,000). Provided there are reasons for such a waiver, the Department will review and provide a responsive waiver or provide information as to why such a waiver is not permissible.