Guide for Directors and Senior Managers of Insurance Companies | Philippines | Asia Pacific Insurance

Does the CEO, director or senior executives of an insurance company need to be registered or licensed by the insurance regulatory authority?

No licensing requirements are imposed on the chief executive officer, directors or senior executives of an insurance company. However, directors are subject to an assessment by the Insurance Commission as to their qualification, moral character, integrity and competence. Moreover, an insurance company is required to submit the bio-data of its board of directors, a list of independent directors, and a list of officers, as contained in its by-laws. Subsequent changes must be reported to the Insurance Commission.

Is approval from the regulator required for the appointment of a director/senior management of an insurance company? Is there any distinction between persons acting in an executive capacity and persons in a non-executive capacity?

No, but the election or appointment of directors and officers of an insurance company, whether executive or non-executive, is subject to evaluation by the Insurance Commission.

Is there generally any distinction between EDs and NEDs?

There is no major distinction between the approval requirements of an executive director and a non-executive director. Under the Insurance Commission Corporate Governance Principles and Leading Practices (IC CGPLP), an executive director heads a department/unit within the corporate organization.

Is approval from the regulator required for the resignation or removal of a director/senior management of an insurance company? Is there any distinction between EDs and NEDs?

No, but changes in the list of directors or officers must be reported to the Insurance Commission.

Is there any nationality requirement for directors/senior management of an insurance company? If so, do any exemptions exist?

The number of directors who are foreign nationals must be in proportion to the foreign shareholding in the insurance company.

Is there a minimum qualification or minimum number of years of relevant experience applicable to directors/senior management of an insurance company?

Under the Amended Insurance Code, only persons of good moral character, unquestioned integrity and recognized competence may assume the positions of stockholders, directors and officers of an insurance company.

Are there any other fitness and propriety requirements that apply to directors of an insurance company? What are they?

Yes, candidates must satisfy various criteria as to age, experience, capabilities, moral character and stock ownership.

Are there any other negative factors which will disqualify a candidate from becoming a director of an insurance company?

Yes, the grounds for disqualification include prior convictions relating to fraud, dishonesty or moral turpitude, violation of laws, insolvency, prior mismanagement of companies, and derogatory records from the police or other law enforcement authorities.

Is there a residency requirement for directors/senior management of an insurance company (e.g., primary residence must be in each local jurisdiction)?

No, not all. However, the majority of the members of the board of directors must be residents.

Does the insurance company need to evaluate its directors/senior management before appointing such persons? What certifications, if any, must the insurance company provide to the insurance regulatory authority in respect of its directors/senior management?

Yes. An insurance company (particularly its nomination committee) has to evaluate its directors and senior management before appointing such persons.

Generally, are there any distinctions in the duties and responsibilities or the regulatory treatment for EDs and NEDs?

Non-executive directors must scrutinize the performance of management in meeting agreed goals and objectives.

Are there any overarching duties and responsibilities for directors/senior management of insurance companies arising from insurance regulations (in addition to general corporate laws)?

Generally, directors must avoid conflicts of interest, conduct fair business transactions, act honestly and judiciously, in good faith and with loyalty to the best interests of the insurance company, its stockholders and other stakeholders (eg, policyholders, investors, borrowers, other clients and the general public), devote time and attention necessary to properly discharge their duties and responsibilities, exercise independent judgment, have a working knowledge of the statutory and regulatory requirements affecting the institution, and observe confidentiality of non-public information obtained by reason of their position.

Directors have the overall responsibility for ensuring that transactions with related parties are handled in a sound and prudent manner, with integrity, and in compliance with applicable laws and regulations to protect the interest of policyholders, members, planholders, card holders, claimants, creditors and other stakeholders. For instance, directors have the duty to approve an overarching policy on the handling of related-party transactions to ensure that there is effective compliance with existing laws, rules and regulations at all times, that these are conducted on an arm's-length basis, and that no stakeholder is unduly disadvantaged.

Will directors/senior management be personally liable for breach of insurance regulations by the insurance company? What penalties are there, if any?

Yes. The Insurance Commissioner may impose fines/suspension/removal upon insurance companies, their directors and/or officers and/or agents, for (i) willful failure or refusal to comply with, or violation of any provision of the Amended Insurance Code (or any order, instruction, regulation, or ruling of the Insurance Commissioner), or (ii) any commission or irregularities, and/or conducting business in an unsafe or unsound manner. The courts may also impose fines and/or imprisonment on officers or directors (or other persons responsible for an insurance company's operation, management, or administration) for criminal violations of the Code. The Insurance Commission may also issue a warning, reprimand, suspension, removal and disqualification of an insurer's directors, officers and employees in case of failure to comply with the guidelines on related-party transactions.

Are directors/senior management of an insurance company subject to any periodic filing/notification requirements? What are they?

There are no specific reporting requirements imposed on directors/senior management officers.

The insurance company, however, is obliged to submit a list of its inactive and active officers and employees who may have been found guilty of or have pending complaints filed against them before the company, any administrative body or court for violations of the Amended Insurance Code and other acts of fraud or misrepresentation. Moreover, an insurance company must disclose in its annual report, if applicable, the original and outstanding individual and aggregate balances, including off-balance sheet commitments, of material related-party transactions, including those that involve directors and senior officers.

Is there a requirement on minimum number of the board of directors of an insurance company?

Yes. The board of directors must be at least five but not more than 15 members, at least two of whom are independent directors.

Are there any rules around composition of the board of directors or equivalent (e.g., independence requirement or the number of executive- or management-level directors)?

Yes. The insurance company must have at least two independent directors.

There should also be a balance between the number of executive and non-executive directors to ensure that no particular group dominates the board's decision making.

Are there any mandatory requirements for setting up of other committees (e.g., audit, remuneration committees)? If so, briefly describe the responsibilities of these committees.

The board must create the following committees:

Audit committee – composed of independent directors, preferably with accounting and finance experience, this committee
provides oversight of the company's internal and external auditors and is responsible for setting up the company's internal audit department and appointing the company's internal and external auditors
Compensation and remuneration committee – composed of at least three members/directors, one of whom must be an
independent director, this committee plans on positioning the company in terms of compensation in relation to other insurance
companies and recommends and monitors the level and structure of salaries, including remuneration for senior management (as
defined by the board)
Nomination committee – composed of three members/directors, one of whom is an independent director, this committee reviews
and evaluates the qualifications of all persons nominated to the board as well as those nominated to other positions requiring
appointment by the board and prepares the job specifications of the chair
Related-party transaction committee - composed of at least three non-executive members of the board of directors, two of
whom shall be independent directors, including the chairperson, this committee evaluates on an ongoing basis existing relations
between and among businesses and counterparties to ensure that all related parties are continuously identified and related-party
transactions are monitored

Are directors of an insurance company permitted to hold other passive business interests (e.g., non-executive directorships and investments/shareholdings in other corporations)? What disclosures, if any, need to be made to the relevant regulatory authorities? Are there restrictions on the number of positions board members can hold?

All incoming officers and senior managers must declare under penalty of perjury all their existing business interests or shareholdings that may directly or indirectly affect the performance of their duties.

No person shall concurrently be a director and/or officer of an insurance company and an adjustment company.

The chief executive officer and other executive directors of the insurance company must submit themselves to a low indicative limit (ie, four or lower) in terms of membership in other corporate boards. The same low limit applies to independent non-executive directors serving as full-time executives in other corporations.

A higher indicative limit (ie, five or lower) may be imposed for other directors holding non-executive positions in any corporation.

In any case, the capacity of directors to serve with diligence should not be compromised.

Is there any requirement or prohibition for an insurance company to make a payment to its directors/senior management?

Here is no prohibition against remuneration to directors/senior management. However, such compensation must be provided in the bylaws of the corporation. Total yearly compensation for directors (as directors) must not exceed 10 percent of the corporation's net income before income tax of the corporation during the preceding year.

Generally, remuneration for non-executive directors should not include share options. If options are granted, shareholders' approval is necessary.

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