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Consultation Paper CP53 on Corporate Governance Code for Captive Insurance and Captive Reinsurance U
The Central Bank of Ireland (the “Central Bank”) has initiated a consultation process on a proposed new corporate governance code for captive insurance and captive reinsurance undertakings regulated by the Central Bank (together “Captives”) which proposes to set out minimum corporate governance standards for Captives.
Captives were specifically excluded from the scope of the Corporate Governance Code for Credit Institutions and Insurance Undertakings as introduced by the Central Bank in January 2011 (the “Corporate Governance Code”).
While similar to the general tenets of the Corporate Governance Code, the Central Bank has in the draft code contained in CP53 developed a more proportionate corporate governance code for Captives that, at the outset, appears to more accurately reflect the nature, scale and complexity of the business of Captives and generally reflects certain of the requirements that Captives will be required to comply with under Solvency II.
Submissions on the CP53 and the draft code are invited from interested parties by no later than 10 June 2011.
It is hoped that a finalised code will be issued in Autumn 2011 and it is proposed that Captives will be given a transitional period of six months within which to implement changes to systems and structures in order to ensure compliance.
Proposed Minimum Standards
Key requirements contained in the draft code are:
- the Board of Directors of each Captive will be required to have a minimum of three directors and will be required to meet at least twice annually;
- each director of a Captive will be subject to an overall limit of 25 directorships, regardless of whether the directorship is held in a captive company or non-captive. It is proposed that in calculating the number of directorships, the Central Bank will exclude directorships held in group companies and in non-financial services groups of companies;
- each Captive will be required to appoint a chairman and deputy chairman to the Board of Directors. Of note is that the chairman cannot be a director or an employee of the Captive’s manager;
- each Captive will be required to comply with the Code on an individual basis, and while a Captive may adopt policies or procedures developed at its group level, the Captive will be required to satisfy itself that such policies or procedures meet all of the requirements of the Code;
- each Captive will be required to establish, document and review annually a risk appetite for the Captive;
- each Captive will be required to submit an annual compliance statement to the Central Bank specifying whether the Captive has complied with the Code; and
- a failure to comply with the requirements may be subject to sanction under the administrative sanctions procedure and a breach of the proposed code can constitute an offence.
The draft code does not require that Captives establish an Audit Committee or Risk Committee, provided that the Board of Directors discharges these functions. The draft code does, however, set out requirements which will apply should the Captive establish an Audit Committee or Risk Committee. Furthermore, there is no requirement in the draft code to appoint independent non-executive directors to the Board of Directors.
While the draft code does not specifically set out these requirements, Captives could still remain subject to the requirements of the EC (Statutory Audits)(Directive 2006/43/EC) Regulations 2010 which require certain companies to establish an Audit Committee and to appoint a minimum of two independent non-executive directors to the Audit Committee.