BILL NUMBER:S3012

TITLE OF BILL:  An act to amend the insurance law, in relation to
revising the standards relating to the board of directors of domestic
life insurance companies

PURPOSE:

This bill will amend § 1202(b) of the Insurance Law to authorize a
parent insurance corporation and other entities to satisfy the
independent board of director requirements of such subsection for
subsidiary, domestic life insurance corporations

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.