SAM: Are your systems ready for Governance?

The current document only addresses governance for solo insurers. A separate document will be compiled by the Insurance Task Group on Group Governance with similar requirements including integrated risk and capital management, specifics for group-wide and centralised functions.

Within governance the key sub-components addressed include general governance, including the Board of Directors, Board designated committees (e.g. Audit Committee), Senior Management, business rescue and IT governance. Within the component of the risk management system the Task Group have sought to address remuneration and the risk management framework, while the section on system of internal control focus on a controls framework.

It also discusses outsourcing with particular reference to the governance, risk management and internal controls implications pertaining to outsourcing arrangements. This section has however not been scrutinised by the Task Group for consistency with the proposed interim measures and Directive 159.A.i

The document used the Controls Functions as defined in the Solvency II Directive which are: the risk management function, actuarial control function, compliance and the internal audit functions; all collectively referred to as the "system of governance". This document still has to consider the findings of a Discussion Document entitled "the role of the Statutory Actuary" as to how and where this particular role belongs within the system of governance.

The final section of the documents addresses the governance, risk management and internal control requirements that should be considered by insurers and reinsurers that seek to use an internal model/partial internal model for regulatory reporting purposes.

The document is comprehensive and makes reference to a number of other relevant sources such as the King Code on Corporate Governance, the Companies Act, and the International Association of Insurance Supervisors’ Insurance Core Principles.

Good corporate governance is an essential component of any sustainable business. The challenge however is to ensure that a balance is maintained between the cost, value and performance. This is particularly true and challenging for smaller insurers, where although the principle of proportionality theoretical applies, in practice it would be difficult to achieve.

There is a strong possibility that we will see the FSB performing a"governance assessment" later in 2012 to evaluate insurers and reinsurers preparedness of these final measures.

*This article first appeared in the SAIA Bulletin of February, 2012.