Relates to the directors of a domestic stock life insurance company

Summary of provisions

This bill amends § 1202(b)(3) of the insurance law to authorize parent insurance corporations, mutual insurance holding companies, or a publicly held corporation to fulfill the independent board of director requirements of § 1202(b) of the Insurance Law for domestic life insurers. Current law limits which entity within a holding system may perform the independent director functions of a domestic life insurer to only domestic subsidiaries if the parent company is also a domestic life insurance company.

Justification

Section 1202(b) of the Insurance Law establishes the rules for independent members of the Board of Directors of domestic life insurance corporations in New York. Paragraph (1) of this subsection requires that the board of directors of such insurers and each committee of the board must be made up of not less than one-third independent members (persons who are not officers or employees of such insurer or of any entity controlled by or controlling such insurer) Additionally, paragraph (2) of this subsection provides that such insurer must establish one or more committees comprised solely of independent directors to perform the functions of an audit committee, compensation committee and nominating committee.

Under current New York law, these independent board member requirements can only be satisfied within the Board of Directors of the domestic life insurer, the only authorized exception being for circumstances where the domestic life insurer is controlled by another domestic life insurer that is in compliance with these requirements.

These provisions of § 1202(b) of the Insurance Law are consistent with the requirements for independent audit committees set forth in the Annual Financial Reporting Model Regulation ("Model Audit Rule") of the National Association of Insurance Commissioners (NAIC) and the requirements for independent board members, nominating and compensation committees set forth in the NAIC Insurance Holding Company System Regulatory Model Act ("Holding Company Act"). The independent Board requirements of these Models are virtually identical to the New York law but for the fact that the Models authorize the independent Board functions to be performed by parent corporations within a holding company system The Models recognize the efficiencies of performing these independent Board functions at a parent company level on behalf of multiple affiliated insurers.

Taken together, for a holding company doing business nationwide, this results in circumstances where the entity is able to satisfy applicable requirements for independent board members at a parent holding company level in every state, other than New York Holding companies that have a New York domestic life insurance subsidiary must perform these functions separately at the New York domestic insurer level.

Since the enactment of the federal Sarbanes Oxley Act, which imposed stringent standards and additional liability for the Board of Directors of business corporations, it has been increasingly difficult to attract and retain individuals to serve in that function, especially at the domestic subsidiary company level. Individuals making the commitment to serve as Board members at the parent holding company level often have more, higher quality business experience than those individuals choosing to serve at a single state subsidiary level Additionally, since 2008, business corporate governance standards have reflected a growing reliance on and requirements for oversight of the risks inherent to the entire holding company enterprise, rather than each individual entity component All of these factors substantiate the national standard for independent directors reflected in the current NAIC Models, rather than the outdated provisions of the current New York law.

In addition to being totally inconsistent with the national standard for independent directors, this provision of New York law is also unfair in that it only applies to domestic life insurers and does not extend to domestic property-casualty insurers.

The proposed amendment will bring New York law into compliance with the independent audit committee requirements of the Model Audit Rule in all states and the independent board member, compensation and nominating committee requirements of the Holding Company Act in the states which have adopted the independent director requirements.

Legislative history

New bill

Fiscal implications

None

Effective date

Immediately.