Corporate Governance for Mutuals

Chapter 612 vs Chapter 611 612 - Town Mutual 611 - Domestic

Chapter 612 (Town Mutuals) Chapter 612 vs Chapter 611 Chapter 612 (Town Mutuals) Chapter 611 (Domestic) Reporting Requirements Annual Quarterly, Annually Operating Territory 8 contiguous counties; OCI may authorize up to 16 Statewide Surplus requirement $200,000 $2,000,000 State Security Fund No Yes Proxy voting allowed

Corporate Governance Annual Disclosure Model Act Emerging Regulatory Requirements Corporate Governance Annual Disclosure Model Act Cyber Security Model Act

Merger Objection Climate change Regulatory actions Data Breach Impact of the Courts Merger Objection Climate change Regulatory actions Data Breach

Policyholder vs. Shareholder Transferable Ownership Right to attend annual meeting Right to vote for directors Non transferable Ownership Right to attend annual meeting Right to vote for directors

Chapter 612 - Town Mutual Regulations Defines Membership Defines voting rights Sets guidelines for Directors Mergers Conversion to 611 Voluntary Dissolution Authorized Business Territory Reinsurance Undertakings to Pay Premiums Assessments Organization of Town Mutuals Articles of Incorporation Other State Statutes Changes must be approved for: Articles By-Laws Business Plan

Ins 13 - Town Mutual Regulations Specifies other rules that apply to Town Mutuals Articles of Incorporation Undertakings Accounting Surplus Requirements Valuation of Liabilities Reinsurance

General Insurance Regulations Chapter 181 – Nonstock Corporations Chapter 601 - Insurance Administration Chapter 620 – Insurance – Investments Chapter 625 – Rate Regulation Chapter 628 – Insurance Marketing Chapter 631 – Insurance Contracts Generally Chapter 632 – Insurance Contracts in Specific Lines Ins 6 – General Ins 28 – Continuing Education

Chapter 611 – Domestic Regulations Articles of Incorporation Surplus Requirements Business Plans must be filed Security issuance Mutual policyholder voting rights Proxy Voting Annual Report Board of Directors Conflict of Interest Affiliates D & O Executive Compensation Merger of Mutuals Conversion Stock to mutual Mutual to stock Assessable to non-assessable Non-assessable to assessable

Corporate Governance Failures

Corporate Governance Failures Kenneth Lay Jeffrey Skilling Andrew Fastow

Corporate Governance Failures Board must have a majority of independent directors Independent directors must comply with an elaborate definition of independent directors. The compensation committee, nominating committee, and audit committee shall consist of independent directors. All audit committee members should be financially literate. At least one member of the audit committee is required to have accounting or related financial management expertise. In addition to its regular sessions, the board should hold additional sessions without management.

Corporate Governance Failures Gramm-Rudman Act

Corporate Governance Failures

Corporate Governance Annual Disclosure CGAD Corporate Governance Annual Disclosure Requires insurers to submit an annual report regarding their corporate governance guidelines, procedures, and practices Disclosure will be required annually at least through 2020 NAIC review 5 year audits Not currently adopted in Wisconsin, but anticipated it will be soon

Corporate Governance Annual Disclosure CGAD Corporate Governance Annual Disclosure How do the qualifications, expertise and experience of each board member meet the needs of the insurer or insurance group? How is an appropriate amount of independence maintained on the board and its significant committees? How many meetings are held by the board and its significant committees over the past year? How is director attendance? What is the process to identify, nominate and elect members to the board and its committees?

Corporate Governance Annual Disclosure CGAD Corporate Governance Annual Disclosure What is the process to for the board to evaluate its performance and the performance of its committees? What recent measures have been taken to improve performance (including any board or committee training programs that have been put in place)? What are the processes or practices (i.e., suitability standards) to determine whether officers and key persons in control functions have the appropriate background, experience and integrity to fulfill their prospective roles? Do you have a code of business conduct and ethics? What are the processes for performance evaluation, compensation, and corrective action to ensure effective senior management throughout the organization?

Corporate Governance Annual Disclosure CGAD Corporate Governance Annual Disclosure Is there a succession plan? How are oversight and management responsibilities delegated between the board, its committees and senior management? How is the board kept informed of the insurer’s strategic plans, the associated risks, and steps that senior management is taking to monitor and manage those risks? How are reporting responsibilities organized for each critical risk area.?

Best Practices for Corporate Governance Code of Ethics Confidentiality Policy Strategic Business Plan Succession Planning

The Role of the Board Risk management of the company Investment management by the board Reinsurance management by the board Strategic Planning Internal audit controls and standards

The Role of the Management Implementation of the Strategic Plan Reporting on the condition of the company

Evaluating the CEO - CGAD Qualifications for management Define the role of the Executive Duties Authority How do these differ from the Board? Executive compensation practices and policies Salary Bonus Profit Sharing PTO vs. Vacation Benefits