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ICP 7 Corporate Governance

The supervisor requires insurers to establish and implement a corporate governance framework which provides for sound and prudent management and oversight of the insurer’s business and adequately recognises and protects the interests of policyholders.


Objectives and Strategies of the Insurer


7.1

The supervisor requires the insurer’s Board to set and oversee the implementation of the insurer’s business objectives and strategies for achieving those objectives, including its risk strategy and risk appetite, in line with the insurer’s long term interests and viability. 



Appropriate Allocation of Oversight and Management Responsibilities


7.2

The supervisor requires the insurer’s Board to:

  • ensure that the roles and responsibilities allocated to the Board, Senior management and Key Persons in Control functions are clearly defined so as to promote an appropriate separation of the oversight function from the management responsibilities; and
  • provide adequate oversight of the Senior Management.



Structure and Governance of the Board


7.3

The supervisor requires the insurer’s Board to have, on an on-going basis:

  • an appropriate number and mix of individuals to ensure that there is an overall adequate level of knowledge, skills and expertise at the Board level commensurate with the governance structure and the nature, scale and complexity of the insurer’s business;
  • appropriate internal governance practices and procedures to support the work of the Board in a manner that promotes the efficient, objective and independent judgment and decision making by the Board; and
  • adequate powers and resources to be able to discharge its duties fully and effectively. 



Duties of Individual Board Members


7.4

The supervisor requires the individual members of the Board to:

  • act in good faith, honestly and reasonably;
  • exercise due care and diligence;
  • act in the best interests of the insurer and policyholders, putting those interests of the insurer and policyholders ahead of his/her own interests;
  • exercise independent judgment and objectivity in his/her decision making, taking due account of the interests of the insurer and policyholders; and
  • not use his/her position to gain undue personal advantage or cause any detriment to the insurer. 



Risk Management and Internal Control Systems and Functions


7.5

The supervisor requires the insurer’s Board to provide oversight in respect of the design and implementation of sound Risk management and internal control systems and functions.


Remuneration Policy and Practices


7.6

The supervisor requires the insurer’s Board to:

  • adopt and oversee the effective implementation of a remuneration policy, which does not induce excessive or inappropriate risk taking, is in line with the identified Risk appetite and long term interests of the insurer, and has proper regard to the interests of its stakeholders; and
  • ensure that such a remuneration policy, at a minimum, covers those individuals who are members of the Board, Senior Management, Key Persons in Control functions and other employees whose actions may have a material impact on the risk exposure of the insurer (major risk–taking staff). 



Reliable and Transparent Financial Reporting


7.7

The supervisor requires the insurer’s Board to ensure there is a reliable financial reporting process for both public and supervisory purposes which is supported by clearly defined roles and responsibilities of the Board, Senior management and the external auditor.



Transparency and Communications


7.8

The supervisor requires the insurer’s Board to have systems and controls to ensure the promotion of appropriate, timely and effective communications with the supervisor and relevant stakeholders on the governance of the insurer. 


Duties of the Senior Management


7.9

The supervisor requires the insurer’s Board to have appropriate policies and procedures to ensure that Senior Management:

  • carries out the day-to-day operations of the insurer effectively and in accordance with the insurer’s strategies, policies and procedures;
  • promotes a culture of sound risk management, compliance and fair treatment of customers;
  • provides the Board adequate and timely information to enable the Board to carry out its duties and functions including the monitoring and review of the performance and risk exposures of the insurer, and the performance of Senior Management; and
  • provides to the relevant stakeholders and the supervisor the information required to satisfy the legal and other obligations applicable to the insurer or Senior Management. 


Supervisory Review


7.10

The supervisor has the power to require the insurer to demonstrate the adequacy and effectiveness of its Corporate governance framework. 



7.10.1    

The supervisor plays an important role by requiring the Board and Senior management of the insurer to demonstrate that they are meeting the applicable Corporate governance requirements, consistent with these standards, on an on-going basis. For this purpose, the supervisor should assess whether the insurer’s overall Corporate governance framework, including remuneration policies and practices, is effectively implemented and remains adequate by undertaking periodic on-site inspections and/or other (including off-site) reviews as appropriate to the nature, scale and complexity of the insurer’s business and its risk profile. Where significant changes in the insurer’s Corporate governance framework are identified, including through information provided by the insurer, the supervisor should update its assessment.


7.10.2    

The onus for demonstrating, to the satisfaction of the supervisor, that the Corporate governance framework is effective and operates as intended rests with the insurer. The supervisor should provide any guidance and rulings as appropriate to facilitate this process. The supervisor should, for the purposes of monitoring due compliance, establish effective channels of communication with the insurer, and have access to relevant information concerning the governance of the insurer. This may be obtained through periodic reports to the supervisor and any information obtained on an ad-hoc basis (see also Standard 7.8). 


7.10.3    

The supervisor should assess the effectiveness of the Board, particularly whether the Board members have the relevant expertise, ability and commitment among them to provide effective leadership, direction and oversight of the insurer, taking into due account of the nature, scale and complexity of the operations of the insurer. The supervisory review should encompass the expertise and qualifications of Board members, their continuous training, the frequency of their participation and proactive involvement in Board proceedings as evidenced by the minutes or records of such meetings and the quality and timeliness of the information made available to Board members relating to the affairs of the insurer, including for the purposes of the Board or committee meetings. 


7.10.4    

To ascertain the on-going effectiveness of the Board in light of the nature, scale and complexity of the insurer’s operations, the supervisor may also consider the use of measures such as the following, where appropriate:

  • on-going mandatory training for Board members that is commensurate with their respective duties, roles and responsibilities within the insurer;
  • a review of the periodic self-evaluation undertaken by the Board as referred to in Guidance 7.3.4;
  • meetings and/or interviews with the full Board and its individual members as appropriate, particularly to reinforce the expectations placed on Board members relating to their performance and to get a sense of how informed and proactive they are; and
  • attending and observing Board proceedings. 


7.10.5    

Where remuneration policies of an insurer contain more high risk elements, closer supervisory scrutiny of those policy and practices may also be warranted, including requests for additional information as appropriate to assess whether those practices are having an adverse impact on the on-going viability of the insurer or commissioning an independent assessment of the insurer’s remuneration policy and practices.