ORDER AMENDING AND CREATING A RULE
Office of the Commissioner of Insurance
Rule No. Agency 145 – Ins 40 and 53, Wis. Adm. Code, proposes an order to amend INS 40.01 and 40.05; and to create INS 40.01 (5m) and (7m), 40.07 to 40.09, ch. 53 (title) and chapter, Wis. Adm. Code, relating to holding company supervision amendments and corporate governance disclosure requirements for NAIC accreditation and affecting small business.
The statement of scope for this rule SS: 080-18, was approved by the Governor on July 9, 2018, published in Register No. 751A3, on July 16, 2018, and approved by the Commissioner on August 28, 2018. The proposed rule was approved by the Governor on December 5, 2019 to submit to the legislature and was submitted to the legislature on December 18, 2019. The rule passed through committees and JCRAR on March 23, 2020 with no action taken.
ANALYSIS PREPARED BY THE OFFICE OF THE COMMISSIONER OF INSURANCE (OCI)
Statutes interpreted:
Statutory authority:
Explanation of OCI’s authority to promulgate the proposed rule under these statutes:
The commissioner has the general authority to promulgate rules necessary to administer and enforce chs. 600 to 655, Stats., and as provided under ss. 227.11 (2) (a) and 601.41, Stats. Additionally, s. 601.41 (3) (a), Stats., grants the commissioner “rule-making authority under s. 227.11 (2).” Further, s. 601.42 (1g), Stats., gives the commissioner the authority to require from those subject to regulation, among other things, “statements, reports, answers to questionnaires, and other information, and evidence thereof, in whatever reasonable form the commissioner designates, and at such reasonable intervals as the commissioner chooses, or from time to time.” Finally, s. 601.42 (2), Stats., states that [T]he commissioner may prescribe forms for the reports under subs. (1g) and (1r) and specify who shall execute or certify such reports.” Section 610.80, Stats., was recently enacted as a result of 2017 Wis. Act 313, establishing the requirement for an annual corporate governance disclosure. Section 610.80 (7), Stats., states, “[T]he commissioner may promulgate any rules necessary to carry out the purposes of this section.” The proposed rule would create ch. Ins 53, Wis. Adm. Code, to delineate the requirements for the annual disclosure for corporate governance and specify timing and the form as prescribed by the commissioner in order for OCI to comply with the statutory requirements contained in 2017 Wis. Act 313. Section 617.215 (2) (a) 3., Stats., authorizes the commissioner to “clarify the functions of a supervisory college and the role of other regulators, including the establishment of a group-wide supervisor.” Further, s. 617.12 (2), Stats., authorizes the commissioner “to promulgate rules requiring insurers to report their enterprise risk, including the form of the report and the manner and process for filing the report.” The NAIC model regarding group-wide supervision of internationally active insurance groups falls within the regulation of insurance holding companies and intercorporate transactions and therefore is applicable. The OCI is proposing rules that will address several financial regulations implementing newly required accreditation standards for the financial supervision of insurers. Specifically the proposed rules will create ch. Ins 53, Wis. Adm. Code, to implement the corporate governance annual disclosures as established in 2017 Wis. Act 313 that created s. 610.80, Stats.; amend various sections of ch. Ins 40, Wis. Adm. Code, to reflect changes to the holding company system for group-wide supervision of internationally active insurance groups. The proposed changes will bring the office into compliance with the National Association of Insurance Commissioners (NAIC) Financial Regulation Standards and Accreditation Program requirements that are a necessary component of the accreditation of the office. Accreditation is a certification given to a state insurance department once it has demonstrated that it has met legal, financial and organizational standards. Accreditation is important to retain OCI’s ability to oversee its domestic insurers including those doing a multi-state business. At the same time the proposed rules reduce burdens on some insurers by creating consistency across states for those insurers doing business in multiple states.
Related statutes or rules:
Plain language analysis:
The objectives of the proposed rules are to improve the regulation of internationally active insurance groups that include at least one Wisconsin insurer, and to specify filing procedures and the contents of the corporate governance annual report which insurers are required to file under s. 610.80, Stats.
Both of the changes are to bring Wisconsin into alignment with NAIC model regulations. Wisconsin must adopt them in substantively the same form as the NAIC model regulations if the OCI is to remain a state insurance regulatory agency that is accredited by the NAIC. It is a goal of the OCI and a benefit to domestic insurers for OCI to maintain its accreditation because as an NAIC accredited state, domestic insurers are only subject to certain filing requirements with OCI and financial examination by OCI. Without accreditation, domestic insurers could be subject to financial examination and filing requirements for all jurisdictions in which they operate. This could include examination from all 56 U.S. jurisdictions for some insurers. Without accreditation, the cost of doing business for Wisconsin’s domestic insurance industry would increase because their regulation by other states would increase. In order to maintain accreditation, OCI must adopt certain standard regulations developed by the NAIC. In addition, the proposed changes are similar to those adopted or that will be adopted in other states and work to promote uniformity for insurance holding company systems operating across multiple states.
Wisconsin’s current ch. Ins 40, Wis. Adm. Code, generally follows the NAIC Insurance Holding Company System Regulatory Model Act (Model Act) and Insurance Holding Company System Model Regulation (Model Regulation). The NAIC recently made changes to its Model Act to improve the coordination of regulatory efforts when internationally active insurance groups are involved. The proposed rule changes in ch. Ins 40, Wis. Adm. Code, would authorize the commissioner to act as, or designate the regulatory official of another jurisdiction to act as, the group-wide supervisor of any internationally active insurance group that includes at least one Wisconsin insurer. A similar cooperative regulatory approach is already used on an interstate level. The rule change would expand this type of approach to include foreign jurisdictions that meet certain regulatory criteria. In addition, it would enable Wisconsin to maintain its NAIC accreditation. Secondly, the NAIC recently created the NAIC Corporate Governance Annual Disclosure Model Act, the goal of which is to require an annual filing that would enable the commissioner to gain a better understanding of an insurer’s corporate governance framework. In 2017, Wisconsin enacted s. 610.80, Stats, which generally follows the Model Act. The NAIC also created the Corporate Governance Annual Disclosure Model Regulation, which sets forth procedures for filing and the required contents of the corporate governance annual disclosure. The proposed rules creating ch. Ins 53, Wis. Adm. Code, follow the provisions of the Model Regulation, and are necessary in order for s. 610.80, Stats, to take effect. The rules are also required for Wisconsin to maintain its NAIC accreditation. Summary of and preliminary comparison with any existing or proposed federal statutes and regulations:
Accredited insurance departments are required to undergo a comprehensive review by an independent review team every five years. To ensure to office continues to meet financial solvency oversight standards and accreditation standards the office is required to have adequate statutory and administrative authority to regulate an insurer’s corporate and financial affairs and the necessary resources to carry out that authority.
OCI is proposing implementation of both the NAIC updated model holding company regulation and the NAIC corporate governance annual disclosure model regulation. Specifically, both changes will create new provisions that are not currently covered in existing rules. Following the enactment of s. 610.80, Stats., which established the requirements of an annual corporate governance disclosure, the proposed ch. Ins 53, Wis. Adm. Code, would delineate the requirements for that annual disclosure and specify the timing and the form as prescribed by the commissioner in order for OCI to comply with the statutory requirements. The proposed changes to ch. Ins 40, Wis. Adm. Code, would allow the commissioner to act as, or recognize another regulator to act as, a group-wide supervisor of an internationally active insurance group, resulting in more efficient regulation and better cooperation with other regulators. Summary of any public comments and feedback on the statement of scope of the proposed rule that the agency received at any preliminary public hearing and comment period held under s. 227.136, Stat., and a description of how and to what extent the agency took those comments and that feedback into account in drafting the proposed rule. The office gave notice of a preliminary public hearing on a statement of scope for s. Ins 40 and ch. 53, Wis. Adm. Code, relating to holding company supervision amendments and corporate governance disclosure requirements for NAIC accreditation and affecting small business. The notice was published in the Wisconsin Administrative Register on July 30, 2018, in Register No. 751A3. A public hearing was held on July 30, 2018 at 3:00 pm. Notice as also published on the office’s website. The public could provide oral or written testimony and a public comment period was open until 4:00 pm on August 14, 2018. The office received one comment that was a general statement of support and did not request or suggest modifications to the statement of scope, therefore no further action was taken by the office.
Comparison of similar rules in adjacent states as found by OCI:
Illinois: 50 IL ADC 1250.30 regarding corporate governance. No pending laws or regulations regarding supervision of internationally active insurance groups.
Iowa: Iowa Admin Code R. 191-111.1-191-111.5 implementing Iowa Code § 521H for corporate governance annual disclosures. Iowa Code § 521A.6B addresses the supervision of internationally active insurance groups.
Michigan: No pending laws or regulations regarding supervision of internationally active insurance groups, Michigan enacted HB-6520 on December 6, 2018, M.C.L.A. 500.1755 creating ch. 17A and s. 3032 regarding corporate governance annual disclosure effective January 1, 2020 Minnesota: M. S. A. § 60D.217 regarding groupwide supervision of internationally active insurance groups.
A summary of the factual data and analytical methodologies that OCI used in support of the proposed rule:
The OCI has reviewed NAIC models and insurer’s financial information to support the analysis that this rule change is beneficial to the state of Wisconsin and its insurance industry.
Analysis and supporting documentation that OCI used in support of OCI’s determination of the rule’s effect on small businesses or in preparation of an economic impact analysis:
The proposed rules will implement provisions that all states will need to have in place for accreditation purposes. For insurers subject to the jurisdiction of the commissioner that do the business of insurance in many states including Wisconsin the requirements proposed will be consistent with other states’ requirements. For insurers that do the business of insurance solely within the state of Wisconsin, the requirements would be imposed only as applicable. The proposed rules are expected to have a negligible economic impact since no special expertise will be required to complete the reporting. Specifically, insurers will not be required to incur costs for retaining actuaries or certified public accountants as a result of the proposed rules. The information may be supplied by the insurers in a form convenient to them as the Commissioner will delineate the content and not the structure of the reports.
Effect on small business:
The rule is not likely to have a significant impact on small businesses that are insurers or that are insured by businesses subject to the proposed rule as little to no economic impact is anticipated and therefore will not be passed on to insureds. Under the proposed rule and NAIC models small businesses including town mutual and fraternal organizations will be required to file the annual corporate governance disclosures. This is a new requirement and one that initially will require time but no special expertise. The OCI considered alternatives to lessen the impact on small businesses; however, as this is an accreditation requirement the OCI cannot exempt or lessen the requirements for any of the licensed insurers doing business in the state.
A copy of any comments and opinion prepared by the Board of Veterans Affairs under s. 45.03 (2m), Stats., for rule proposed by the Department of Veterans Affairs. None.
Agency contact person:
or by contacting Karyn Culver, Paralegal, at:
Phone: (608) 267-9586
Address: 125 South Webster St – 2nd Floor, Madison WI 53703-3474
Mail: PO Box 7873, Madison, WI 53707-7873
