Louisiana Insurers Conference. Annual Louisiana Insurance Compliance Seminar & Legislative Review Van R. Mayhall, III

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1 Louisiana Insurers Conference Annual Louisiana Insurance Compliance Seminar & Legislative Review 2015 Van R. Mayhall, III

2 ORSA Own Risk and Solvency Assessment Act 196 Enacts a new ORSA Subpart of the Code: "to provide the requirements for maintaining a risk management framework and completing an own risk and solvency assessment (ORSA) "

3 ORSA Definition: Own Risk and Solvency Assessment A confidential internal assessment Appropriate to the nature, scale, and complexity of an insurer/insurance group Conducted by that insurer/insurance group Of the material and relevant risks associated with the insurer/insurance group's current business plan, and The sufficiency of capital resources to support those risks.

4 ORSA "Insurance group" means "those insurers and affiliates included within an insurance holding company system " "Insurance holding company system" consists of two or more affiliated persons, one or more of which is an insurer. "Affiliate" means a person that directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, the person specified.

5 ORSA Exemptions Applies to "all domestic insurers unless exempt" Exemptions: 1. Company Exemption: The insurer has annual direct written and unaffiliated assumed premium of less than $500 million. 2. Group Exemption: The insurer s "insurance group" has annual direct written and unaffiliated assumed premium of less than $1 billion.

6 ORSA Exemptions If an insurer qualifies for the Company Exemption, but its insurance group does not qualify for the Group Exemption: The insurer must still be included in any ORSA summary report that is required to be submitted by any other insurer in that insurance group.

7 ORSA Exemptions If an insurer does not qualify for the Company Exemption, but its insurance group does qualify for the Group Exemption: The insurer is still required to submit an ORSA summary report.

8 ORSA Exemptions An insurer that does not qualify for either exemption may nevertheless apply for a waiver "based upon unique circumstances " Type and volume of business written, Ownership, Organizational structure, and Any other factors the LDOI considers relevant.

9 ORSA Exemptions Even if an insurer qualifies for an exemption, the LDOI may still require compliance "based upon unique circumstances " Type and volume of business written, Ownership, Organizational structure, Federal agency requests, International supervisor requests, RBC company-action level event, or Hazardous financial condition Otherwise exhibits qualities of a troubled insurer.

10 ORSA Requirements ORSA must be conducted at least annually, and any time there are significant changes to the risk profile of the insurer/insurance group. ORSA summary report. Risk management framework. ORSA Guidance Manual.

11 ORSA Summary Report The ORSA Summary Report is a "confidential highlevel summary" of an insurer/insurance group's ORSA. Must submit annually if the LDOI Commissioner is the "lead state commissioner" of the insurance group as determined by the procedures within the NAIC Financial Analysis Handbook. Otherwise, must submit upon request by the LDOI.

12 ORSA Risk Management Framework Risk Management Framework An insurer/insurance group shall maintain a risk management framework to assist the insurer with identifying, assessing, monitoring, managing, and reporting on its material and relevant risks.

13 ORSA Guidance Manual The Own Risk and Solvency Assessment Guidance Manual Developed and adopted by the NAIC. Includes guidance as to conducting an ORSA as well as preparing an ORSA summary report.

14 ORSA Confidentiality Extensive language in the law designed to protect the confidentiality of the ORSA summary report, as well as any other documents, materials and information related to the ORSA requirements.

15 ORSA Impact Currently, little impact except for insurers with premium of $500 million or more, or insurance groups with premium of $1 billion or more. Trickle down? Best Practices? Enterprise Risk?

16 ORSA Impact Origin of ORSA: International Association of Insurance Supervisors (IAIS). IAIS creates international standards and guidelines on insurance supervision. In 2011, IAIS adopted 26 Insurance Core Principles (ICPs) to provide a global framework for the regulation and supervision of insurance.

17 ORSA Impact ORSA is one of IAIS's 26 Insurance Core Principles. ORSA was adopted by the NAIC in In 2014, NAIC conducted a self-assessment using the ICPs. ICPs utilized by the Financial Sector Assessment Program (FSAP) of the World Bank and the International Monetary Fund.

18 ORSA Impact Potential increase in use of ICPs or other IAIS regulatory initiatives in federal regulation? Potential of NAIC adopting additional ICPs or other IAIS regulatory initiatives? Possible affect on insurance industry and state-based insurance regulatory system?

19 Corporate Governance Disclosure Corporate Governance Annual Disclosure Act Act 304 Enacts a new Corporate Governance Annual Disclosure Subpart of the Code: "Provide the commissioner a summary of an insurer or insurance group's corporate governance structure, policies, and practices "

20 Corporate Governance Disclosure Applies to "all insurers domiciled in this state." Insurer, or its insurance group, must submit a corporate governance annual disclosure (CGAD) no later than June 1 st of each year. CGAD and related information is confidential, not subject to Public Records Law, subpoena, etc.

21 Corporate Governance Disclosure The disclosure "shall contain the material information necessary to permit the commissioner to gain an understanding of the insurer's or insurance group's corporate governance structure, policies, and practices." LDOI "may request additional information deemed material and necessary to provide a clear understanding of the corporate governance policies, the reporting or information system, or controls implementing those policies."

22 Corporate Governance Disclosure The disclosure "shall be prepared consistently with rules, regulations and orders" promulgated by the LDOI. The disclosure must be signed by the CEO or Secretary of the insurer/insurance group "attesting to the best of that individual's belief and knowledge that the insurer has implemented" said corporate governance practices.

23 Corporate Governance Disclosure The disclosure may be made at the: Ultimate Controlling Person (UCP) level; or Intermediate holding company level; or Individual legal entity (insurer) level.

24 Corporate Governance Disclosure The insurer/insurance group is "encouraged" to make the disclosures at the level at which: 1. The insurer/insurance group's risk appetite is determined; or 2. Earnings, capital, liquidity, operations, and reputation of the insurer are overseen, supervised, coordinated and exercised; or 3. Legal liability for failure of general corporate governance duties would be placed.

25 Corporate Governance Disclosure The LDOI may retain, at the insurer's expense, thirdparty consultants (attorneys, actuaries, accountants, and other experts) as may be reasonably necessary to assist in the review of the disclosure. While the disclosure and related information are confidential, the LDOI may share information with the NAIC, and other state, federal and international regulators, as well as third party consultants.

26 Corporate Governance Disclosure Any insurer that fails to timely file the CGAD, "without just cause," must pay a penalty of $ for each day that the disclosure is late, up to a maximum of $10, Penalty imposed only after notice and an opportunity to be heard.

27 Notice of Wrongful Conduct Act 15 Enacts a new notice procedure prior to the taking of any regulatory action by the LDOI: The issuance of a notice of wrongful conduct.

28 Notice of Wrongful Conduct Prior law: With respect to "any person entitled to a hearing" under any provision of the Insurance Code, the LDOI "may" issue a notice to show cause regarding the proposed regulatory action. This requires the person to "show cause" at a hearing as to why the regulatory action should not be taken.

29 Notice of Wrongful Conduct New law: With respect to "any person entitled to a hearing" under any provision of the Insurance Code, the LDOI now must issue a notice of wrongful conduct prior to taking regulatory action. This notice affords the person the opportunity to show cause "in a manner specified in the notice" as to why regulatory action should not be taken.

30 Association-Sponsored Self-Insured Trust Act 455 Allows for the creation of an association-sponsored self-insured trust to operate a self-insurance plan to provide health care services to the association's members and their employees.

31 Association-Sponsored Self-Insured Trust Association must be an "active trade or professional association" which satisfies all of the following: Tax exempt organization (IRS) or nonprofit corporation (Title 12 of LRS); and Provides services to its membership so that the trust sponsorship is not its primary function; and For at least 10 years prior to application, must have had board meetings at least annually; and

32 Association-Sponsored Self-Insured Trust Association requirements, continued: For at least 10 years prior to application, must have had board meetings at least annually; and Chartered and domiciled in Louisiana; and In existence since January of 1950; and Comprised of professionals that possess licenses issued by an authority of the state in order to conduct the business of the profession.

33 Association-Sponsored Self-Insured Trust Similarities with group self-insurance funds for workers' compensation: Sponsored by an association; Participants are employers that are members of the association and the self-insured trust; Members sign an indemnity agreement; Members liable in solido for unpaid claims of trust.

34 Association-Sponsored Self-Insured Trust Notable differences from group self-insurance funds for workers' compensation: More stringent requirements for association (in existence since 1950, etc.); Association is responsible for unpaid claims liability of the trust; Members' in solido liability not triggered unless the association fails to satisfy these liabilities.

35 Association-Sponsored Self-Insured Trust Association-sponsored self-insured trusts are expressly excluded from membership in either LIGA and LLHIGA; no guaranty association coverage. In the event of an insolvency, the LDOI can direct the trust to levy an assessment on the association, its members, or both. If the trust does not levy such assessment, the LDOI can levy the assessment in the name of the trust.

36 LDOI Reorganization Act 274 Provides for certain organizational and structural changes with the LDOI.

37 LDOI Reorganization Expands the Office of Consumer Advocacy into the Office of Consumer Advocacy and Diversity. Expands the Division of Minority Affairs into the Division of Diversity and Opportunity: Reviews all complaints alleging a violation of the Equal Opportunity in Insurance Subpart of the Code.

38 LDOI Reorganization Expands the Office of Health into the Office of Health, Life and Annuity. Creates the Division of Consumer Services: Duties include the receipt and processing of consumer complaints, market conduct analysis and examination. Institutes various other internal changes.

39 Louisiana Insurers Conference Annual Louisiana Insurance Compliance Seminar & Legislative Review 2015 Van R. Mayhall, III Breazeale, Sachse & Wilson, L.L.P. (225)