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.

Introductory Guidance


7.0.1
The corporate governance framework of an insurer:
  • promotes the development, implementation and effective oversight of policies that clearly define and support the objectives of the insurer;
  • defines the roles and responsibilities of persons accountable for the management and oversight of an insurer by clarifying who possesses legal duties and powers to act on behalf of the insurer and under which circumstances;
  • sets requirements relating to how decisions and actions are taken including documentation of significant or material decisions, along with their rationale;
  • provides sound remuneration practices which promote the alignment of remuneration policies with the long term interests of insurers to avoid excessive risk taking;
  • provides for communicating with the supervisor, as appropriate, matters relating to the management and oversight of the insurer; and
  • provides for corrective actions to be taken for non-compliance or weak oversight, controls or management.

7.0.2

An effective corporate governance framework enables an insurer to be flexible and transparent; to be responsive to developments affecting its operations in making timely decisions and to ensure that powers are not unduly concentrated. The corporate governance framework supports and enhances the ability of the key players responsible for an insurer’s corporate governance; ie the Board, Senior Management and Key Persons in Control Functions to manage the insurer’s business soundly and prudently.


Organisational structures


7.0.3
The insurer should establish a transparent organisational structure which supports the strategic objectives and operations of the insurer. The Board and Senior Management should know and understand the structure and the risks that it poses.
The ways in which an insurer chooses to organise and structure itself can vary depending on a number of factors such as:
  • jurisdictional corporate law, which may allow or require different Board structures (such as one-tier or two-tier Boards);
  • organisational structure such as stock companies, mutuals or co-operatives; and
  • group, branches, or solo legal entity operations.
These considerations can affect how an insurer establishes and implements its corporate governance framework and are explained in more detail below. It is important for supervisors to understand these different considerations in order to be able to adequately assess the effectiveness of an insurer’s corporate governance framework.

CF 7.0a
The group-wide supervisor requires the Head of the IAIG to document the legal and management structures of, and inter-relationships within, the IAIG to enable an understanding of its structure to help identify risks and how they are managed.

CF 7.0.a.1
The documentation should mainly support the IAIG Board and Senior Management in discharging their responsibilities, but can also be useful for the group-wide supervisor.

CF 7.0.a.2
The documentation covers legal entities within the IAIG and, where relevant, the wider group of which the IAIG is part, and includes items such as:
  • home jurisdiction of the Head of the IAIG;
  • the jurisdictions of legal entities within the IAIG, including branches;
  • off-balance sheet entities;
  • materiality of legal entities or business lines within the IAIG;
  • financial ties (such as commercial contracts) and non-financial ties (such as common directors); 
  • details of the shareholding structure and significant shareholdings, including controlling shareholders;
  • governance structure, including Boards and their committee structure and key responsibilities; and
  • management structure, including the division of authority and decision making between business line management, local management, and Board oversight.

7.0.4

The standards on corporate governance are designed with sufficient flexibility to apply to supervision of insurers regardless of any differences in the corporate structures and legal systems.

7.0.5

The term Board includes its management and oversight roles, regardless of Board structure.


Mutuals and co-operatives


7.0.6

Governance of insurers formed as mutuals or co-operatives is different from that of insurers formed as joint stock companies (ie, bodies corporate). These standards are nevertheless sufficiently flexible to be adapted to mutuals and co-operatives to promote the alignment of actions and interests of the Board and Senior Management with the broader interests of policyholders. Where there are references to shareholders or stakeholders, they should be generally treated as references to policyholders in mutuals, unless otherwise indicated.


Insurance Groups


7.0.7

Insurance groups should ensure that the corporate governance framework is appropriate to the structure, business and risks of the insurance group and its legal entities. The corporate governance framework should include policies, processes and controls which address risks across the insurance group and legal entities, and clear reporting lines between the head of the group and the legal entities within the group.

7.0.8

When setting up or monitoring their corporate governance framework, insurance groups should evaluate the specific challenges which may arise from the organisational model adopted by a group (e.g. more centralised or more decentralised model). The main factors underlying the challenges are:

  • the division of authorities and responsibilities between the key players at the insurance group and legal entity level;
  • effective group-wide direction and coordination;
  • proper consideration of the legal obligations, governance responsibilities and risks both at the insurance group and legal entity level; and
  • effective communication within the group and adequate information at all levels (see Issues Paper on Approaches to Group Corporate Governance; Impact on Control Functions).

7.0.9

The supervisor should take the organisational structure of the group into consideration in evaluating its governance. Particularly when the management structure differs from the legal entity structure, it is not sufficient to assess governance only at the legal entity level. In such a case, it is important that appropriate governance exists across the group and that the supervisor assesses it on a group-wide basis.

CF 7.0.b
The group-wide supervisor requires the Head of the IAIG to ensure that the group-wide corporate governance framework is appropriate to the structure, business and risks of the IAIG including its legal entities.

CF 7.0.c
The group-wide supervisor requires the Head of the IAIG to establish clear reporting lines between the legal entities within the IAIG and the Head of the IAIG.


Branch operations


7.0.10

If an insurer is a branch, these standards would generally apply to the legal entity in its home jurisdiction. However, the host supervisor may require designated oversight and/or management accountabilities and structures to be maintained at the branch, including in some cases a designated representative responsible for the management of the branch. In such cases, these standards should also apply, as appropriate, to the oversight and management roles maintained within the branch taking due account of the governance structures and arrangements as determined by the host supervisor.