On January 23, 2020, New Jersey Commissioner of Department of Banking and Insurance, Marlene Caride, adopted orders No. A20-01 and A20-02 addressing annual financial reporting and corporate governance disclosures pertinent to insurers transacting business in the state. Both orders are premised upon proposed model regulations adopted by the National Association of Insurance Commissioners (“NAIC”).
Order No. A20-01 amends N.J.A.C. 11:2-26 and proposes a new rule at N. J.A.C. 11:2-26.15. These rules are consistent with the National Association of Insurance Commissioners’ adopted amendments to the NAIC Annual Financial Reporting Model Regulations relating to internal audits by insurers. The new regulations which will be proposed to govern annual financial reporting will apply to all insurers transacting business in the state. While financial statements filed pursuant to N.J.A.C. 11:2-26.5 must be examined by independent certified public accountants, the regulations will require that the audit of the insurer’s financial statements be conducted in accordance with the general accepted audit standards and in accordance with the professional standards of the AICPA, consideration of internal controls and financial standard audit. Thus, the independent CPA must obtain an understanding of the internal controls sufficient to plan the audit. Additionally, the regulations at N.J.A.C. 11:26.14 require that the board of each insurer establish an audit committee responsible for overseeing the insurer’s internal audit function and granting the person or persons performing the function suitable authority and resources to meet their responsibilities.
Order A20-02, “In the Matter of Corporate Governance Annual Disclosure”, outlines regulations to be proposed by the Department of Banking and Insurance and implements PL2019, c.350 (the “Act”). The Order addresses the requirements to, among other things, provide the Commissioner with a summary of the insurer’s or insurer’s groups’ corporate governance structures, policies and practices to facilitate the Commissioner’s understanding of the insurer’s corporate governance framework.
The Act is intended to be consistent with corporate governance standards and internal procedures set forth under applicable New Jersey corporate law and applies only to insurers domiciled in New Jersey, including licensed organized delivery systems and reciprocal insurance exchanges. The corporate disclosure report must be submitted to the Commissioner on an annual basis no later than June 1st and must be executed by the 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 and that a copy of the disclosure has been provided to the insurer’s board of directors or appropriate committee thereof. Even an insurer not required to submit a disclosure under the Act or Order may be required to do so upon the request of the Commissioner. Importantly, upon review of the disclosure, an additional request for information must be made through the insurance group’s lead state or group-wide supervisor. Information provided by the insurer in proxy statements filed in conjunction with registration statements filed pursuant to the Holding Company Act, i.e., “Form B”, or other state or federal filings made by the insurer to the Department of Banking and Insurance shall not be required to be duplicated in the corporate governance disclosure. However, the corporate governance disclosure should cross reference the document in which detailed information is provided.
The corporate disclosure and other materials referenced in it are recognized under the Act as being “proprietary and contain trade secrets”. Thus, that material is deemed confidential by law and privileged and is not subject to disclosure by the Commissioner pursuant to the Open Public Records Act, N.J.S.A. 47:1A-1 et seq. However, the Act does authorize the Commissioner to use the documents, materials or other information in the furtherance of any regulatory or legal action brought as a result of the Commissioner’s official duties. Finally, the Commissioner may retain, at the insurer’s expense, third party consultants as may be reasonably necessary to assist the Commissioner in reviewing the corporate governance annual disclosure or the insurer’s compliance with the Act’s provisions. Substantial monetary fines of up to $5,000 per day may be imposed upon any insurer which fails to timely file the corporate governance annual disclosure.
Questions can be submitted to Cynthia Borrelli or any member of the Bressler, Amery & Ross Insurance Law Practice Group.