H.B. No. 3306
AN ACT
relating to the disclosure of information concerning the corporate
governance structure of certain insurers and related entities;
providing an administrative penalty.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Subtitle B, Title 6, Insurance Code, is amended
by adding Chapter 831 to read as follows:
CHAPTER 831. CORPORATE GOVERNANCE ANNUAL DISCLOSURE
Sec. 831.0001. APPLICABILITY AND PURPOSE. (a) The purpose
of this chapter is to promote the public interest by:
(1) requiring annual disclosure of an insurer or
insurance group's corporate governance structure, policies, and
practices to permit the commissioner to gain and maintain an
understanding of the insurer's corporate governance framework; and
(2) providing for the confidential treatment of the
corporate governance annual disclosure and related information as
the disclosure and related information will contain confidential
and sensitive information related to an insurer or insurance
group's internal operations and proprietary and trade-secret
information which, if made public, could potentially cause the
insurer or insurance group competitive harm or disadvantage.
(b) This chapter may not be construed to prescribe or impose
corporate governance standards and internal procedures beyond that
which is required under applicable state corporate law.
(c) Notwithstanding Subsection (b), this chapter may not be
construed to limit the commissioner's authority, or the rights or
obligations of third parties, under Chapter 401.
(d) This chapter applies to each insurer domiciled in this
state, except that this chapter does not apply to a domestic insurer
that is authorized, admitted, or eligible to engage in the business
of insurance only in this state. For the purposes of this chapter,
an insurer is not considered to be authorized, admitted, or
eligible to engage in the business of insurance only in this state
if the insurer is a member of an insurance group that writes or
assumes insurance in any manner in another state.
Sec. 831.0002. DEFINITIONS. In this chapter:
(1) "Disclosure" means the confidential corporate
governance annual disclosure filed by the insurer or insurance
group in accordance with the requirements of this chapter.
(2) "Insurance group" means the insurers and
affiliates included within an insurance holding company system as
described by Section 823.006.
(3) "Insurer" has the meaning assigned by Section
823.002. The term includes a health maintenance organization
authorized to engage in business under Chapter 843.
Sec. 831.0003. DISCLOSURE REQUIRED. (a) Except as
provided by Subsection (b), an insurer, or the insurance group of
which the insurer is a member, shall, not later than June 1 of each
calendar year, submit to the commissioner a corporate governance
annual disclosure that contains the information described by
Section 831.0008(c).
(b) Notwithstanding any request from the commissioner under
Subsection (d), an insurer that is a member of an insurance group
shall submit the report required by Subsection (a) to the
commissioner of the lead state for the insurance group, in
accordance with the laws of the lead state, as determined by the
procedures adopted by the National Association of Insurance
Commissioners.
(c) The disclosure must include a signature of the insurer
or 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
described in the disclosure and that a copy of the disclosure has
been provided to the insurer's board of directors or the
appropriate committee of the insurer's board of directors.
(d) An insurer not otherwise required to submit a disclosure
under this chapter shall submit a disclosure on the commissioner's
request.
Sec. 831.0004. LEVEL OF REPORTING. (a) For purposes of
completing the disclosure under Section 831.0003, an insurer or
insurance group may provide information regarding corporate
governance at the ultimate controlling parent level, an
intermediate holding company level, or the individual legal entity
level, depending on how the insurer or insurance group has
structured the insurer's or insurance group's system of corporate
governance.
(b) An insurer or insurance group is encouraged to make the
disclosure:
(1) at the level at which the insurer's or insurance
group's risk appetite is determined;
(2) at the level at which the earnings, capital,
liquidity, operations, and reputation of the insurer are overseen
collectively and at which the supervision of those factors are
coordinated and exercised; or
(3) at the level at which legal liability for failure
of general corporate governance duties would be placed.
(c) If an insurer or insurance group determines the level of
reporting based on the criteria described by Subsection (b), the
insurer or insurance group shall indicate which of the three
criteria was used to determine the level of reporting and explain
any subsequent changes in level of reporting.
Sec. 831.0005. REVIEW OF DISCLOSURE; REQUEST FOR ADDITIONAL
INFORMATION. The review of the disclosure and any additional
requests for information shall be made through the lead state as
determined by the procedures adopted by the National Association of
Insurance Commissioners described by Section 831.0003(b).
Sec. 831.0006. SUBSTANTIALLY SIMILAR INFORMATION. An
insurer that provides information substantially similar to the
information required by this chapter in other documents provided to
the commissioner, including proxy statements filed in conjunction
with Form B requirements or other state or federal filings provided
to the department, is not required to duplicate that information in
the disclosure but is required only to cross-reference the document
in which the information is included.
Sec. 831.0007. PART OF EXAMINATION PROCESS. The disclosure
and any additional information requested by the commissioner and
provided to the department as described by this chapter is
considered part of the process of examination of insurers under
this code, including Chapter 401.
Sec. 831.0008. CONTENTS OF DISCLOSURE. (a) An insurer or
insurance group has discretion over the responses to the disclosure
inquiries, provided the disclosure must 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.
(b) The commissioner may request additional information
that the commissioner considers material and necessary to provide
the commissioner with a clear understanding of:
(1) the corporate governance policies; and
(2) the reporting, information system, or controls
implementing those policies.
(c) Notwithstanding Subsections (a) and (b), the disclosure
shall be prepared consistent with rules adopted by the
commissioner. Documentation and supporting information must be
maintained and made available on examination or on request of the
commissioner.
Sec. 831.0009. CONFIDENTIALITY. (a) Documents, materials,
or other information, including a disclosure, in the possession or
control of the department that is obtained by, created by, or
disclosed to the commissioner or any other person under this
chapter is confidential and privileged and is:
(1) not subject to disclosure under Chapter 552,
Government Code;
(2) not subject to subpoena; and
(3) not subject to discovery or admissible in evidence
in any private civil action.
(b) Documents, materials, or other information, including a
disclosure, in the possession or control of the department that is
obtained by, created by, or disclosed to the commissioner or any
other person under this chapter is recognized by this state as being
proprietary and to contain trade secrets.
(c) The commissioner may use the documents, materials, or
other information described in this section to further any
regulatory or legal action brought as part of the commissioner's
official duties. The commissioner may not otherwise make the
documents, materials, or other information public without the prior
written consent of the insurer. Nothing in this section may be
construed to require written consent of the insurer before the
commissioner may share or receive documents, materials, or other
information under Subsection (e).
(d) The commissioner and any other person who receives
documents, materials, or other information under this chapter,
through examination, or otherwise under any other law, while acting
under the authority of the commissioner, or with whom the
documents, materials, or other information is shared under this
chapter may not testify or be required to testify in any private
civil action concerning any documents, materials, or other
information subject to Subsection (a) or (b).
(e) In order to assist in the performance of the
commissioner's regulatory duties, the commissioner may, on
request, share documents, materials, or other information,
including confidential and privileged documents, materials, or
information subject to Subsection (a) or (b) and proprietary and
trade-secret documents, materials, or information, with:
(1) other state, federal, and international financial
regulatory agencies, including members of a supervisory college
described by Section 823.0145;
(2) the National Association of Insurance
Commissioners; and
(3) a third-party consultant under Section 831.0012.
(f) Before the commissioner may share information under
this section, the recipient shall:
(1) agree in writing to maintain the confidential and
privileged status of the documents, materials, or other information
shared under this section; and
(2) verify in writing the recipient's legal authority
to maintain the confidential and privileged status of that
information.
(g) In order to assist in the performance of the
commissioner's regulatory duties, the commissioner may receive
documents, materials, or other governance-related information,
including confidential and privileged documents, materials, or
information and proprietary and trade-secret documents, materials,
or information from:
(1) regulatory officials of other state, federal, and
international financial regulatory agencies, including members of
a supervisory college described by Section 823.0145; and
(2) the National Association of Insurance
Commissioners.
(h) The commissioner shall maintain as confidential or
privileged any documents, materials, or information received under
Subsection (g) with notice or the understanding that it is
confidential or privileged under the laws of the jurisdiction that
is the source of the document, material, or information.
Sec. 831.0010. AUTHORITY OF COMMISSIONER NOT AFFECTED. The
sharing of documents, materials, or other information by the
commissioner under this chapter does not constitute a delegation of
regulatory authority or rulemaking, and the commissioner is solely
responsible for the administration, execution, and enforcement of
the provisions of this chapter.
Sec. 831.0011. PRIVILEGE AND CONFIDENTIALITY NOT WAIVED. A
waiver of an applicable privilege or claim of confidentiality in
documents, materials, or other information, including proprietary
and trade-secret materials, does not occur as a result of
disclosure of the document, materials, or information to the
commissioner under this chapter or as a result of sharing as
authorized by this chapter.
Sec. 831.0012. NATIONAL ASSOCIATION OF INSURANCE
COMMISSIONERS AND THIRD-PARTY CONSULTANTS. (a) The commissioner
may retain, at the insurer's expense, third-party consultants,
including attorneys, actuaries, accountants, and other experts not
otherwise part of the commissioner's staff as may be reasonably
necessary to assist the commissioner in reviewing the disclosure
and related information or the insurer's compliance with this
chapter.
(b) A person retained under Subsection (a) is under the
direction and control of the commissioner and acts in a purely
advisory capacity.
(c) The National Association of Insurance Commissioners and
a third-party consultant are subject to the same confidentiality
standards and requirements as the commissioner.
(d) As part of the retention process, a third-party
consultant shall verify to the commissioner, with notice to the
insurer, that the consultant:
(1) is free of a conflict of interest; and
(2) has internal procedures in place to:
(A) monitor compliance with a conflict; and
(B) comply with the confidentiality standards
and requirements of this chapter.
(e) A written agreement with the National Association of
Insurance Commissioners or a third-party consultant governing
sharing and use of information provided under this chapter must
expressly require the written consent of the insurer before
information provided under this chapter is made public and contain:
(1) specific procedures and protocols for maintaining
the confidentiality and security of disclosure-related information
shared with the National Association of Insurance Commissioners or
the third-party consultant under this chapter;
(2) procedures and protocols for the sharing by the
National Association of Insurance Commissioners of
disclosure-related documents, materials, or other information only
with other state regulators from states in which an affected
insurance group has domiciled insurers, including a requirement
that the recipient agrees in writing to maintain the confidential
and privileged status of the shared documents, materials, or other
information and has verified in writing the recipient's legal
authority to maintain the confidential and privileged status of
that information;
(3) a provision specifying that ownership of
disclosure-related documents, materials, or other information
shared with the National Association of Insurance Commissioners or
a third-party consultant remains with the department and the use of
the information by the National Association of Insurance
Commissioners or third-party consultant is subject to the direction
of the commissioner;
(4) a provision that prohibits the National
Association of Insurance Commissioners or third-party consultant
from storing disclosure-related documents, materials, or other
information shared under this chapter in a permanent database after
the underlying analysis is completed;
(5) a provision requiring the National Association of
Insurance Commissioners or third-party consultant to provide
prompt notice to the commissioner and to the insurer or insurance
group regarding any subpoena, request for disclosure, or request
for production of the insurer's disclosure-related documents,
materials, or other information; and
(6) a requirement that the National Association of
Insurance Commissioners or third-party consultant consents to
intervention by an insurer in any judicial or administrative action
in which the National Association of Insurance Commissioners or
third-party consultant may be required to disclose confidential
information about the insurer shared with the National Association
of Insurance Commissioners or third-party consultant under this
chapter.
Sec. 831.0013. ADMINISTRATIVE PENALTY. (a) An insurer
that, without good cause, fails to timely file the disclosure as
required by this chapter commits a violation subject to an
administrative penalty under Chapter 84.
(b) Each day the violation continues is a separate violation
for purposes of this section.
(c) The commissioner may reduce the amount of the penalty
assessed under this section if the insurer demonstrates to the
commissioner that the imposition of the penalty would constitute a
financial hardship to the insurer.
Sec. 831.0014. RULES. (a) The commissioner shall adopt
rules as necessary to enforce this chapter.
(b) A rule adopted under Subsection (a) is not subject to
Section 2001.0045, Government Code.
SECTION 2. An insurer is not required to file a corporate
governance annual disclosure under Chapter 831, Insurance Code, as
added by this Act, before June 1, 2020.
SECTION 3. This Act takes effect September 1, 2019.
______________________________ ______________________________
President of the Senate Speaker of the House
I certify that H.B. No. 3306 was passed by the House on May 3,
2019, by the following vote: Yeas 140, Nays 0, 2 present, not
voting.
______________________________
Chief Clerk of the House
I certify that H.B. No. 3306 was passed by the Senate on May
22, 2019, by the following vote: Yeas 31, Nays 0.
______________________________
Secretary of the Senate
APPROVED: _____________________
Date
_____________________
Governor