Transcript Research into Design and Practicability of a Common

PUBLIC
Corporate Governance
Yoshi Kawai
Secretary General, IAIS
IAIS-ASSAL Regional Seminar
Buenos Aires, Argentina, 22-24 November 2011
Corporate Governance
Why is Corporate Governance important?
 Lessons learned from the Financial Crisis:
• People matter more than structures
• Focus on adverse incentives
• Importance of independent control functions
• Relevant Insurance Core Principles:
 ICP 5 Suitability of Persons
 ICP 7 Corporate Governance
 ICP 8 Risk Management and Internal Controls
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ICP 5 Suitability of Persons
“The supervisor requires Board Members, Senior
Management, Key Persons in Control Functions
and Significant Owners of an insurer to be and
remain suitable to fulfil their respective roles”.
 Fit and Proper criteria
 Knowledge/experience
(proper understanding of the
business)
 Senior Management attitude and behaviour
 Financial soundness of significant owners
 Suitable background, education and professional expertise/
understand and respect the law / ethical behaviour / avoid conflicts
of interest etc.
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ICP 5 Suitability of Persons (2)
– Board Members, Senior Management and
Key Persons in Control Functions must
possess competence and integrity to fulfil
their roles (Standard 5.2)
– The insurer must demonstrate the suitability
of Board Members, Senior Management, Key
Persons in Control Functions and Significant
Owners (Standard 5.3)
– The supervisor should take appropriate
action to rectify the situation with regard to
the lack of suitability of Board and Senior
Management and Key Persons in Control
Functions (Standard 5.5)
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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.”
 The Supervisor must have the power to require the
insurer to demonstrate the adequacy and effectiveness of
its corporate governance framework (Standard 7.10) and
the power to impose measures.
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ICP 7 Corporate Governance
Requirements to the Board as to:
– Setting objectives and strategies of the insurer
(Standard 7.1)
– Structure and governance of the Board – board
committees (Standard 7.3)
– Duties of individual Board members (Standard 7.4)
– Structure, role and responsibilities of the Senior
Management
– Board responsibility for design and implementation of
sound risk management and internal control systems
– Reliable transparent financial reporting (Standard 7.7)
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Role of the Board of Directors
Board is responsible for reliable and transparent
financial reporting and communication
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The Board
The Board shall ensure that Senior Management:
– carries out the day-to-day operations 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
– provides to the relevant stakeholders and the
supervisor the information required
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Remuneration
The Board shall have oversight of remuneration
policies and practices (incentives for compensation
and risk taking)
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ICP 8 Risk Management and Internal Controls
“The supervisor requires an insurer to have, as
part of its overall corporate governance
framework, effective systems of risk management
and internal controls, including effective functions
for risk management, compliance, actuarial
matters and internal audit.”
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Independent control functions
Control functions include:
• Risk Management
• Compliance
• Actuarial
• Internal Audit
• Oversight of outsourced functions
In order to function properly, the control
functions need:
• Authority
• Independence
• Resources
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Role of the Supervisor
Prerequisite:
ICP 1 Objectives, Powers and Responsibilities of the Supervisor
 Primary legislation clearly defines the objectives of insurance supervision and
the mandate and responsibilities of the supervisor and gives the supervisor
adequate powers to conduct insurance supervision, including powers to issue
and enforce rules by administrative means and take immediate action (Standard
1.2)
ICP 4 Licensing (Standard 4.3)
Licensing requirements and procedures are clear, objective and public, and are
consistently applied, requiring:
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the applicant’s Board Members, Senior Management, both individually and
collectively, Significant Owners and Key Persons in Control Functions to be
suitable;
•
the applicant to satisfy capital requirements;
•
the applicant to have a sound corporate or group structure and governance
framework that does not hinder effective supervision; and
•
the applicant to have sound business and financial plans.
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Role of the Supervisor
 First of all, the Supervisor must have the power to require the insurer to
demonstrate the adequacy and effectiveness of its corporate governance
framework (Standard 7.10) and the power to impose measures.
 The supervisor should require that Board Members, Senior Management and
Key Persons in Control Functions possess competence and integrity to fulfil
their roles (Standard 5.2)
 The supervisor should require the insurer to demonstrate the suitability of Board
Members, Senior Management, Key Persons in Control Functions and
Significant Owners (Standard 5.3)
 The supervisor should take appropriate action to rectify the situation with regard
to the lack of suitability of Board and Senior Management and Key Persons in
Control Functions (Standard 5.5), e.g. suspend or revoke Board members,
Senior Management or Key Persons in Control Functions
 The Supervisor should use its powers to issue and enforce rules by
administrative means and take immediate action.
 Ultimately (threaten to) revoke the license (ref ICP 4 Licensing)
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Role of the Supervisor - oversight
Supervisory Review / Preventive Measures
ICP 9:
The supervisor has an integrated, risk-based system of
supervision that uses both off-site monitoring and on-site
inspections to examine the business of each insurer, evaluate its
condition, the quality and effectiveness of its Board and Senior
Management and compliance with legislation and supervisory
requirements. The supervisor obtains the necessary information to
conduct effective supervision of insurers and evaluate the
insurance market.
ICP 10:
The supervisor takes preventive and corrective measures that are
timely, suitable and necessary to achieve the objectives of
insurance supervision.
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Role of the Supervisor - enforcement
ICP 11:
The supervisor enforces corrective action and, where needed,
imposes sanctions based on clear and objective criteria that are
publicly disclosed.
 The supervisor should use its power to enforce corrective action in a
timely manner (Standard 11.1)
 The supervisor should use its means to address management and
governance problems, including the power to require the insurer to
replace or restrict the power of Board Members, Senior Management,
Key Persons in Control Functions, significant owners and external
auditors (Standard 11.4)
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Conclusion
• Good governance structures and
processes are the foundation for all
business activity and supervisors need to
address issues of governance and internal
controls at an early stage (in the licensing
process) and on a continuous basis.
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Thank you very much!
Any questions?
www.iaisweb.org
[email protected]
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