Commissioner Holly C. Bakke
|For Immediate Release: November 1, 2002||
For Further Information:: Mary Caffrey or Ellen Lovejoy - (609) 292-5064
COMMISSIONER BAKKE REAFFIRMS
DUTY TO MONITOR CORPORATE GOVERNANCE
TRENTON, N.J. - Banking and Insurance Commissioner Holly C. Bakke has underscored the Department's role in protecting consumers by monitoring corporate governance of state-regulated banks and insurance companies, noting that financial upheaval at several corporations has highlighted the need for independent directors and proper audits.
Commissioner Bakke has issued three bulletins that spell out how watching the way companies are run - and who runs them - helps guarantee that insurers and banks will meet customers' needs. The bulletins, 02-23, 02-24 and 02-25, can be obtained on the Department's web site, www.njdobi.org
"With recent reports of conflicts-of-interest and other corporate actions that have hurt investors and workers, I felt it important to restate this Department's commitment to protecting policyholders and depositors," Commissioner Bakke said.
"Consumers who buy insurance, for example, expect that if there's an accident or an emergency, funds will be there to pay claims," Commissioner Bakke said. "It's the job of the regulator to monitor the independence and actions of board members, for they are ultimately responsible for the hard-earned dollars policyholders pay in premiums."
As the bulletin regarding insurance companies notes, "The evaluation of the corporate governance framework of an insurer is a critical element of the solvency surveillance function performed by the Department of Banking and Insurance Office of Solvency Regulation.'' The Division of Banking's Office of Depositories will also emphasize this point during its examinations.
Two bulletins issued today reinforce the importance of internal audits for state-regulated depositories, savings banks, savings and loans and credit unions. The bulletins remind institutions that regular state examinations - conducted at least every two years -- evaluate the independence of board directors, the quality of senior managers and their ability to ensure internal controls, and whether bank managers avoid conflicts of interest, meet community credit needs, and follow the law.
Examinations also cover how well boards manage the institution's financial affairs, particularly the annual audit. Both bulletins note that the annual audit must be performed by a public accountant who is not a director, officer or employee of the institution and has not had a recent relationship with the institution.
The bulletin concerning credit unions spells out the requirements
for separating the duties of board members who award loans and those who supervise
the annual audit.
State law requires on-site financial examinations of insurance companies by Department personnel at least every five years, and companies must also submit annual and quarterly financial statements to the Department. Each year, the companies submit to the Department an audited financial report prepared by an independent Certified Public Accountant. Financial examiners in the Office of Solvency Regulation use information gathered during these checks to determine the level of supervision required - in other words, how often the company must provide updates of its condition - and whether any regulatory action is needed.
Specifically, the bulletin notes, financial examiners monitor:
· Skills, integrity and independence of members of the
board of directors. One-third of the board must be independent, which means
they are not employees or officers of the insurance company, nor are they beneficial
owners of a controlling interest of the insurer.
· Independence and operations of a company's audit committee. All members of this board committee must be independent, and this group selects certified public accountants, monitors financial condition, and evaluates the performance and compensation of company officers.
· Selection and performance of accountants. No individual partner of an accounting firm can perform a company's audit for more than seven consecutive years. If the accountant is dismissed, the Department must be informed and given the reason for the dismissal. Disputes between the accountant and the company must be reported as well.
"In today's environment, bank and insurance customers need to know that the Department keeps a close watch on the makeup of boards of directors, as well as the way directors carry out their duties," Commissioner Bakke said.