Charges of NAIC corporate governance problems erupt

The New York Department of Financial Services uses outside consultants, as does the NAIC, as it has for years on issues such as principles based reserving (PBR.)

“We are an instrumentality of the states, a $100 million non profit, Leonardi told reporters later. “So we should be open and transparent.” He said the issues had been brewing for some time and that he had been struggling for two years internally at the NAIC with corporate governance issues. He said the letter was supported by his Governor, Dannel P. Malloy. 

Missouri Insurance Director John Huff, who chairs the ad hoc Executive Committee group on corporate governance, noted that the NAIC continues to work on its governance practices and embarked on an overall review of them earlier this year. 

A review and focus on open meetings are a big feature of the initial work, Huff noted, saying that the group has begun a review of NAIC bylaws and other issues and will incorporate the proposal to seek an outside consultant as the work continues.  

Leonardi, in his letter, made it clear he was not a fan of the Federal Insurance Office Director (FIO) Michael McRaith’s role in international matters, although he did not refer to him by name. He appeared to blame McRaith, without naming him, for ending the tenure of former NAIC CEO Terri Vaughan, who retired a little over a year ago. A former commissioner close to the process said that this was not true. 

Some say that Leonardi is being passed up by the leadership for head of the NAIC International Insurance Relations Leadership Group, which he now chairs, in favor of McCarty, who Leonardi accuses as being part of the cabal, without naming him.

Leonardi wrote that, at first, not one NAIC staff member agreed to giving a seat to FIO on the International Association of Insurance Supervisors (IAIS) executive committee, but the decision had already been made unilaterally before the seat had been given up, and it was then that the the “FIO director had the audacity to demand that he take the seat held by our NAIC  CEO.” 

He said the lack of due process in the appropriate committees resulted in a blunder that was one of the “most strategically important decisions/mistakes in the organization’s 130 year history.”

Various state commissioners defended their roles, and while many support corporate governance oversight and a possible consultant, most at the NAIC meeting didn’t want to participate by name in the article. 

Kansas Insurance Commissioner Sandy Praeger, who Leonardi said made the “egregious and unfortunate choice” to shut off public discussion, did say that she was using a procedure after the different sides had been aired and it seemed that this debate should be done through the regular process. Commissioners like Praeger asked what the rush was to hire a consultant before first nailing down the issues and making proposals. 

Leonardi clearly feels attacked, many observers said at the meeting, aware of the changing dynamics in NAIC leadership with the ascension of Adam Hamm of North Dakota as NAIC President. Louisiana Commissioner Jim Donelon, who supports Leonardi, sunsets as top leader.

He made it clear he thinks someone else is running the table now without regard to procedure, whether through a “cabal,” or through other means that could use a good impartial review and overhaul in administrative processes. 

“My efforts as the chair of the NAIC’s International Committee (and as someone widely recognized as a credible and able defender of and spokesman for our national state-based system of insurance regulation) have also been undermined by this so called leadership,” Leonardi said.