This Legal Alert addresses the “White Paper on High-Level Corporate Governance Principles for Use in U.S. Insurance Regulation” Click here for White Paper exposed for comment at the Spring NAIC Meeting in Austin, Texas. The White Paper is controversial in several ways as discussed below. We first provide a summary of the White Paper and highlight problematic provisions. Then, we summarize selected Delaware corporate governance case law and analyze how the White Paper appears to conflict with existing law.

The White Paper is the product of the Corporate Governance Working Group (CGWG) of the NAIC’s Solvency Modernization Initiative (SMI) Task Force. The NAIC describes the SMI as “a critical self-examination to update the United States’ insurance solvency regulation framework...” taking into account international insurance solvency developments.1 The SMI Roadmap identifies “governance & risk management” as one of its five focus areas2 and lists as one of the SMI’s “deliverables” the study of international corporate governance principles to determine whether to incorporate these principles into an NAIC “model law or other implementation tool.”

The White Paper is controversial, perhaps not intentionally, in several ways. For example, it purports to address corporate governance principles for regulated insurance companies, yet implicates corporate governance at the holding company level in significant ways. Unlike the NAIC’s Model Audit Rule,3 which imposes limited corporate governance requirements on statutory insurers but includes special exemptions for insurers in “SOX-compliant” holding companies, the White Paper neither reconciles nor acknowledges the complex governance interrelationships among holding companies and their wholly owned insurance company subsidiaries.