Guidelines on Corporate Governance for the Insurance Sector

SI. No.
Point Nos.
IRDA's Corporate Governance Guidelines
Comments from Various Stakeholders/Individuals
IRDA's Response
1. 3.1 The certificate of commencement....... permitted within this period. The lock in period may be restricted to five years from the commencement of business. R3 is issued after capitalization and the company is also get approval for launching of few products. There is unlikely to be major delay in commencement of operation. Hence, we may retain the 5 year lock-in period from the date of R3.
2. 3.2 Ceiling of FDI capped at 26% Ceiling of FDI capped at such percentage as notified from time to time. Modified slightly considering that amendments are yet to be approved.
3. 3.2 and 3.3 Clauses from existing Regulations May be deleted from the Corporate Governance Norms. The reiteration is to summarise the regulatory position.
4. 3.4 Conflict of interest of significant owners. Conflict of interest and nature of interest should be defined. Clarification required on what comprises the fiduciary duties of a significant owner and conflict of interest. The provisions w.r.t. conflicts of interest of shareholders and directors to IRDA may be dropped. There is no need for separate guidelines on this point. Provisions contained in Companies Act should continue to apply. The existing arms length criteria and AS-18 may also continue to be applicable. All related party transactions are fully scrutinized by the Auditors and are reported separately in the financial statements and are within the purview of Transfer pricing regulations. Hence, the existing mechanism in place is adequate. Modified suitably.
5. 3.5 Conflict of interest of Directors. No requirement of a provision under these guidelines for disclosure of conflict of interest situations by directors. An internal conflict of interest policy required to be put in place by all insurers, covering its employees and directors, which can contain requirements of disclosure and management of conflict of interest situations within the company. As the responsibility to address conflicts of interest would be that of the Board, there will not be any need for report to the Authority. Hence, 3.5 may be deleted.
6. 3.6 Auditors, Actuaries, Directors and Senior Managers.... result in conflict of interest. More clarity is required to fully understand the implications of the term "conflict" in case a Senior Manager holds more than one position. Hence, the proposed requirement should not apply to Senior Managers and further the control functions should be independent and directly reporting to board. The provision is only as an alert and does not prohibit holding of two positions simultaneously, if there is no conflict of interest. Slightly modified to reflect the Authority's view.
7. 3.7 No arrangement involvement payment of remuneration.... prior explicit approval of the IRDA. Define 'Remuneration'. The term "Arrangement involving payment of Remuneration' should be clearly defined. The term "associate" may be defined in line with the definition of "Companies under the same management" u/s 370(1 B) of the Companies Act Payments from shareholder's fund may be excluded from the purview of this requirement and threshold be set on the requirement of prior approval in case of payments made from policyholders' account. Prior approval from IRDA for related party transactions should be deleted as the same is governed under Companies Act, 1956 and AS-18. The Authority may seek for periodic intimations from the Company. Reimbursement of ordinary course costs and expenses incurred by the promoter company for providing services for the benefit of the insurance company would become subject to prior IRDA approval. In addition, this provision should be expressly "grandfathered", so that any payment made pursuant to a contract duly entered into prior to the effective date of the Guidelines does not require IRDA approval. Further clarification regarding the payment related to technical know-how or any other payment to promoter or its associates which forms part of the JV should be covered. May be deleted as it would amount to repetition of process. There is a merit in the proposal to do away with prior approval of IRDA, since, AS 18 covers this aspect and compliance is required to be certified by the Stautory Auditors. It is also proposed prescribe disclosures in the financial statements in this regard separately. Hence, could be deleted.
8. 3.8 The Board........ capital augmentation of the company. The Insurer's management should ensure ongoing compliance with the statutory requirements on capital structure...... and report on this compliance to the Board. We may retain.
9. 5.1 (i) Independent Directors. So long as an insurance company is unlisted, its Board should consist of 2 independent directors, at least initially. An Actuary should be included in the Board with important role especially in actuarial issues. The above requirement should be in line with the Clause 49 of Listing Agreement. Suitably modified to provide for minimum two independent directors for unlisted companies.
5.1 6th Bullet (ii) "At a minimum........ should be independent". "At a minimum where the company has a non executive Chairman, at least one third of the directors should be independent and in other cases at least 50% of the directors should be independent". The requirement should be in line with the Clause 49 of Listing Agreement and relaxation should be given since companies are not listed presently. As above
10. 5.1 Bullet 6 The optimum........ benefits the shareholders and policyholders. The term 'independent executive and non-executive directors' should read as 'independent and non-executive directors'. As above
; 5.1 6th Bullet Definition of Independent Directors. Should be clearly defined as "Independent director" means a non-executive director who: (i) is not involved with the management of, not in paid employment with the company or any promoter of the company and (ii) does not have a material pecuniary relationship with the company or any promoter of the company; in each case which will, or is likely to, interfere with the exercise of his independent judgment." Non-executive directors nominated by promoters may be considered as independent directors provided they satisfy the two conditions mentioned in the above definition. Note: Directors' remuneration as per Section 309 of the Companies Act, 1956 shall not be construed as material pecuniary relationship, as clarified in clause 49 of the Listing Agreement. Modified to reflect alignment with listing agreement definition.
11. 5.1 7th Bullet Where the Chairman of the Board is non-executive.... of the Board. Flexibility should be given to the Company on appointment of the CEO being a Whole-Time Director and it is recommended that this provision be deleted. Not accepted. IRDA would like CEO to be a whole-time director as in the case of banking company.
12. 5.1 8th Bullet As a matter of prudence...... on the Board of the Insurer. As long as Independent Directors are appointed, using the 'fit and proper' criteria, there need not be any additional restrictive criterion. SEBI's Clause 49 of the Listing Agreement/RBI guidelines does not contain restrictions on appointment of Directors based on qualifications and experience. Section 314 of Companies Act also governs the appointment of Directors or their relatives to office or place of profit. Hence, this clause may be deleted. In the case of joint venture (JV) companies, the JV partners usually nominate Directors (who are senior professional officials of the respective companies) on the Board of the Company in line with the JV agreement. Clarify and confirm

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