Ref: IRDA/F&A/CIR/CG/081/05/2011
Date:02-05-2011
To,
CEO of All Life Insurers,Non Life Insurers and Reinsurer
Dear Sir,
Re: Compliance with Corporate Governance Guidelines (CG Guidelines)
Attention is drawn to the Corporate Governance Guidelines issued by the Authority vide Circular no. IRDA/F&A/CIR/025/2009-10 dated 05th August, 2009, and Circular No. IRDA/F&I/CIR/F&A/014/01/2010 dated 29TH January, 2010.
The following additional stipulations shall form part of the Guidelines:-
I. Annual Filing of Compliance Status:
a) All insurers are required to file a Report on status of compliance with the C G Guidelines on an annual basis w.e.f. the Financial Year 2010-11. This report shall be filed within 90 days from the end of the Financial year (i.e., before 30th June).
The report should be filed in the format as placed in Annexure-1.
b) Clause 9 of the CG Guidelines requires confirmation of disclosures made in the Annual Accounts. In such instances, where the finalization of Annual Accounts extends beyond 90 days of the close of the financial year, the status on disclosure in the Financial Statements as required under the aforementioned clause may be made within 15 days of adoption of the Annual Accounts by the Board of Directors of the insurers. This is in line with the stipulations issued by IRDA vide Circular No. IRDA/F&A/013/2005-06 dated 9th June, 2005.
II. Filling up of the Vacancy to the Post of Independent Director on the Board
Clause 5.1 of the CG Guidelines lays down the requirements regarding appointment of a minimum number of independent directors on the Board of Directors of an insurer. These stipulations are in line with Section 48 of Insurance Act, 1938.
All insurers are required to ensure compliance with the stipulations regarding the minimum number of independent directors at all times. In case, the number of independent directors falls below the minimum requirement laid down, the vacancy shall be filled up within a maximum period of 180 days, under intimation to the Authority.
III. Optional Committees
Clause 7 of the CG Guidelines provides for the formation of following three optional committees:
1) Remuneration Committee
2) Nomination Committee
3) Ethics Committee
It is further clarified that though the formation of such Committees is optional, once these are in place, the insurer is required to comply with the requirements on the “Role and Responsibilities” of such Committees as laid down in the said clause of the CG Guidelines.
Insurers are advised to initiate steps to ensure compliance with respect to such Committees.
These stipulations come into force with immediate effect.
(R. K. Nair)
(Member-F&I)
ANNEXURE-1
CORPORATE GOVERNANCE GUIDELINES – STATUS OF COMPLIANCE
| CG guidelines
|
Compliance | Present Scenario | Gaps, if any, in Compliance | Proposed Action for addressing the gaps |
| 5.0 Governance Structure – Board of Directors | ||||
| 5.1 Composition | ||||
| 1. Properly Constituted Board | ||||
| a. total number of Directors in the Board | ||||
| b. total number of Independent Directors | ||||
| c. Total number of non-executive Director | ||||
| 2. Independent Directors: | ||||
| (i) Independent Directors: The Board of Directors is required to have a significant number of “Independent Directors” (as laid down in the Listing Agreement). | ||||
| (ii) Whether more than one member of a family or a close relative as defined in the Companies Act or an associate (partner, director etc) are on the Board of an Insurer as ‘Independent director’ | ||||
| (iii) Whether the total number of Independent Directors are two or more | ||||
| 3. In case Chairman is Non-executive Chairman,
(i) CEO should be Whole-time Director of the Board |
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| 5.2 The Role and responsibility of the Board and their Discharge | ||||
| (i) As stipulated in Annexure I of the CG guidelines | ||||
| (ii) Whether the Board has set clear & transparent policy framework for translation of corporate objectives. | ||||
| (iii) Transparent Information flow from the senior management through well documented agenda notes and appropriate systems to serve as effective monitoring arrangements. | ||||
| (iv) Establish strategies and policies define ethical individual behavior and corporate behaviour and ongoing, effective processes that ensure adherence to these strategies and policies | ||||
| (v) Areas for Board to focus: (in Nutshell)
1. Overall direction if business 2. Compliance with IRDA regulations, Insurance Act & other statutory requirements. 3. Addressing conflict of interest 4. Fair treatment of policyholders & employees. 5. Sharing & disclosure of information 6. Develop corporate culture & adherence to ethical standards |
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| 5.3 Fit and Proper Criteria: | ||||
| (i) Whether there is a system to obtain an annual declaration from the Directors that the information provided in the declaration at the time of appointment/ reappointment has not undergone any change subsequently and the changes, if any, are apprised by the concerned Director to the Board | ||||
| (ii) Whether the Directors are also required to enter into a Deed of Covenant as per the format prescribed by the Authority with the insurance company. | ||||
| 5.4 Conduct of Meetings: | ||||
| (i) System that would make Co. Secretary responsible for proper conduct of the Board meetings and with adequate time to deliberate on the major issues in detail. | ||||
| (ii) System of familiarizing new Directors with the background of the company’s governance philosophy, duties and responsibilities of the Directors etc. | ||||
| (iii) Disclosure Requirements: | ||||
| a. The company must disclose the following in their annual report, interalia, Number of the meetings held of the Board of Directors and Committees mandated under the guidelines, in the financial year. | ||||
| b. Details of the composition of the Board of Directors and Committees mandated, setting out name, qualification, field of specialization, status of directorship held etc. | ||||
| c. Number of the meetings attended by the Directors and the members of the committee. | ||||
| d. Detail of the remuneration paid, if any to the independent director. | ||||
| (iv) All the mandatory committees should meet at least four times in a year and not more than four months shall elapse between two successive meetings. The quorum shall be either two members or one third of the members of the committee whichever is greater, but in case an independent director is mandated to be in any of the Committees, he/she should be necessarily present to form the quorum. | ||||
| 6. Control Functions: | ||||
| (i) Whether the Board has laid down the policy framework on various control systems as enumerated at point no. 6 of CG guidelines. | ||||
| (ii) Appropriate and effective group-wide risk control systems in addition to the systems for insurers within a Group. Boards of the insurers to lay down the requisite policy framework. | ||||
| 7. Committees | ||||
| a. Mandatory Committees | ||||
| 1) Audit Committee
2) Investment Committee 3) Risk Management Committee 4) Policyholders Protection Committee 5) Asset Liability Management (only in case of life insurers) (Optional if the company has Risk Management Committee) |
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| b. Optional Committees | ||||
| 1. Nomination Committee
2. Remuneration Committee 3. Ethics Committee |
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| c. Status of Compliance with the guidelines in respect of optional committees | ||||
| d. Composition of the Committee | ||||
| (i) Audit Committee :
a. whether the chairman of the audit committee is an independent Director strong financial analysis background |
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| (ii) Investment Committee :
1. Whether Committee consists of at least two Non Executive Directors, the Chief Executive Officer, Chief of Finance, Chief of Investment Division and wherever an appointed actuary is employed, the Appointed Actuary 2. Whether any new appointment or removal of any member of the Investment Committee is also be approved by the Board and there is a system to communicate to the Authority within 30 days. a. Whether the IC meets at least once in a quarter and looks into various aspects of investment operations and monitors them. d. Whether the IC furnishes a report to the Board on the performance of Investments at least on a quarterly basis and provides analysis of its Investment portfolio and on the future outlook to enable the Board to look at possible policy changes and strategies. |
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| (iii) Policyholder Protection Committee: whether the minutes of the committee are placed as an agenda item to the Board. | ||||
| i.e. Quorum / Frequency of the Meeting
(i) All the mandatory committees should meet at least four times in a year and not more than four months shall elapse between two successive meetings. (ii) The quorum shall be either two members or one third of the members of the committee whichever is greater, but in case an independent director is mandated to be in any of the Committees, he/she should be necessarily present to form the quorum. |
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| 8. Disclosures | ||||
| (i) Disclosure Requirements | ||||
| a. Basis, methods and assumptions on which the information
b. Quantitative & qualitative information on the insurer’s financial & operating ratios viz., incurred claim, commission & expenses ratios. c. Actual solvency margin details vis-à-vis the required margin. d. Financial performance including growth rate and current financial position of the insurer. e. Description of the risk management architecture. j. Details of number of claims intimated, disposed of & pending with details of duration. g. All pecuniary relationships or transactions of non-executive directors. h. Elements of remuneration package of individual directors |
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| (ii) Disclosure in the annual accounts : | ||||
| 1. Summarized under major groups.
2. All related party transactions. 3. Matters which have material impact on the financial position. |
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| 9. Outsourcing: | ||||
| 1. All outsourcing arrangements of the company shall have the approval of the Board.
2. Whether Every outsourcing contract contains explicit safeguards regarding confidentiality of data and all outputs from the data, continuing ownership of the data with the insurer and orderly handing over of the data and all related software programmes on termination of the outsourcing arrangement 3. The arrangement shall be for a defined duration of not more than 3 years and should have provision for premature cancellation without attracting penalties |
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| 10. Relationship with Stakeholders: | ||||
| The disclosures stipulations must address the following:
1. financial statements accurately and fairly represent the financial condition of the insurer; and 2. The insurer is running its business soundly and will be viable over the long term. In particular, the disclosure requirements of the participating policyholders and the unit linked policyholders must be duly addressed. |
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| 11. Reporting IRDA | ||||
| v Whether the Insurer has appointed Company Secretary as Compliance officer whose duty will be to monitor continuing compliance with these guidelines. | ||||
| 12. Whistle Blowing Policy | ||||
| v Whether the Insurer has put in place a “Whistle Blowing Policy” |
