HC-1 HC-1 The Board[versions up to January 2011]
HC-1.1 HC-1.1 Functions and Responsibilities[versions up to January 2011]
General Requirement[versions up to January 2011]
HC-1.1.1 [versions up to January 2011]
With the exception of unincorporated entities and single person companies, all
Bahraini insurance licensees must have a Board ofDirectors ('the Board'). The Board is ultimately accountable and responsible for the management and performance of the licensee.HC-1.1.2 [versions up to January 2011]
To discharge its responsibility effectively, a Board typically delegates various functions and tasks, for instance to Board sub-committees, management and other employees. When it delegates, the Board nonetheless retains ultimate responsibility for the performance of those functions and tasks.
HC-1.1.3 [versions up to January 2011]
Insurance brokers who were licensed prior to the introduction of Volume 3 (Insurance), and who were unincorporated entities or natural persons at that time, may continue as such until 31 December 2006 (refer to ES-2.2.1). Under Volume 3,insurance brokers andinsurance consultants may be licensed as a single person company or (in the latter case only) a sole proprietorship: see Section AU-2.1.Amended: January 2007Specific Requirements[versions up to January 2011]
HC-1.1.4 [versions up to January 2011]
The Board must establish and maintain a statement of its responsibilities, defining its functions and tasks and those delegated to Board sub-committees and senior management. This statement must be clearly communicated to Board members and senior management.
HC-1.1.5 [versions up to January 2011]
The Board must approve and review at least annually the licensee's:
(a) Strategic plans;(b) Management structure and responsibilities; and(c) Systems and controls framework (including its policies and procedures).Amended: January 2007HC-1.1.6 [versions up to January 2011]
The Board must also regularly review:
(a) The licensee's implementation of its strategy and operational performance;(b) The performance of its executive management; and(c) The level of risk.Amended: January 2007HC-1.1.7 [versions up to January 2011]
The Board must set out clearly and review on a regular basis who has authority to enter the licensee into contractual obligations. The Board should set a materiality threshold so that contractual obligations above this set threshold are regularly reported to the Board. In setting the materiality threshold, the Board will consider the financial impact the contractual obligations may have in relation to its capital.
HC-1.1.8 [versions up to January 2011]
The Board must have effective policies and processes in place to address its members' potential conflicts of interest, including matters such as:
(a)Related party transactions ;(b) The misuse of assets belonging to the licensee; and(c) The use of privileged information for personal advantage ('insider trading').Amended: January 2007HC-1.1.9 [versions up to January 2011]
Board members must declare in writing all of their interests in other enterprises or activities (whether as a
shareholder , manager, or other form of participation) to the Board (or the Nominations or Audit Committee) on an annual basis. Any Board member should also absent himself from any discussion or decision-making that involves a subject where he is incapable of providing objective advice, or which involves a subject, transaction or proposed transaction where there is a potential conflict of interest.HC-1.1.10 [versions up to January 2011]
The Board and its members must act with honesty, integrity, due skill and care, and in the best interests of the licensee, its
shareholders andpolicyholders .HC-1.1.11 [versions up to January 2011]
In assessing compliance with Paragraph HC-1.1.10, the CBB will take into account all actions of the Board and its members. The interest of the licensee includes the licensee's continued compliance with all relevant Rules and Regulations, and the interests of
employees ,customers and otherstakeholders . The interest ofshareholders includes the current and future value of the licensee, its status as a going concern, transparency and disclosure of information to the market. The interest ofpolicyholders includes ensuring that the licensee fulfils its obligations under itspolicies and treats allpolicyholders fairly and pays equal regard to the interests of allpolicyholders and groups ofpolicyholders .Amended: January 2007
Amended: October 2007Additional Guidance[versions up to January 2011]
HC-1.1.12 [versions up to January 2011]
In assessing the licensee's strategic plans (Paragraph HC-1.1.5), the CBB would expect the Board to address the licensee's current and future aspirations with respect to its position in the market place, its size, products, value and other key aspirations that would be considered important by investors. Furthermore, the Board should demonstrate that it is able to proactively identify and understand the significant risks that the licensee faces in achieving its business objectives. A description of the licensee's strategy should be included in the annual financial statements. See also Module PD (Public Disclosure).
Amended: January 2007HC-1.1.13 [versions up to January 2011]
In assessing the management framework (Paragraph HC-1.1.5), the CBB would expect the Board to have effective policies and processes in place for:
(a) Ensuring a formal and transparent Board nomination process;(b) Appointing senior managers, and ensuring that they have the necessary integrity, technical and managerial competence, and experience;(c) Overseeing succession planning, and minimizing undue reliance on key individuals;(d) Reviewing key senior management and Board remuneration packages and ensuring such packages are consistent with the corporate values and strategy of the licensee and encourage prudent risk taking;(e) Monitoring and evaluating management's performance in implementing agreed strategy and business plans, and ensuring appropriate resources are available; and(f) Approving budgets and reviewing performance against those budgets.Amended: January 2007HC-1.1.14 [versions up to January 2011]
In assessing the systems and controls framework (Paragraph HC-1.1.5), the CBB would expect the Board to be able to demonstrate that its operations, individually and collectively:
(a) Are measured, monitored and controlled by appropriate, effective and prudent risk management systems commensurate with the scope of the licensee's activities. These should pro-actively identify as well as monitor risk. The systems should produce information on a timely basis, and in a form and quality appropriate to the needs of the different recipients;(b) Are supported by an appropriate control environment. The risk management and financial reporting functions must be independent of business lines and must be run by individuals not involved with the day-to-day running of the various business areas; and(c) Make effective use of the work of internal and externalauditors . The internal audit function should be independent of the senior management, reporting to the Audit committee. The Audit Committee should ensure that the external auditor firm and its partners are truly independent of the licensee and have no financial or other relationship with the licensee. Audit findings should be used as an independent check on the information received from management about the licensee's operations and performance and the effectiveness of internal controls.Amended: January 2007HC-1.2 HC-1.2 Composition[versions up to January 2011]
HC-1.2.1 [versions up to January 2011]
Captive insurance firms are exempt from the requirements of this section, except for Paragraphs HC-1.2.2 and HC-1.2.13, which apply to allBahraini insurance licensees (except for unincorporated entities and single person companies).Amended: January 2007HC-1.2.2 [versions up to January 2011]
The Memorandum and Articles of Association of licensees must adequately set out procedures for the appointment, removal and retirement of
Directors .HC-1.2.3 [versions up to January 2011]
For
insurance firms , the Board must comprise at least fiveDirectors . ForBahraini insurance licensees , other thaninsurance firms , the Board must comprise at least threeDirectors . For allBahraini insurance licensees , at least half the Board's members, including the Board's chairman, must benon-executive Directors .Amended: January 2007
Amended: October 2007HC-1.2.4 [versions up to January 2011]
A
non-executive Director is aDirector who is not involved in the day-to-day management of the licensee and is not anemployee of the licensee. The Chairman of the Board cannot, therefore, also perform the role ofChief Executive .Amended: January 2007
Amended: October 2007HC-1.2.5 [versions up to January 2011]
For licensees that do not meet the requirements of Paragraph HC-1.2.4, the CBB may grant, upon application by the licensee, a transition period allowing the licensee to maintain the current structure for a limited period (Refer to ES-2.2.2).
Amended: January 2007HC-1.2.6 [versions up to January 2011]
The CBB requires Boards of
insurance firms to include at least two independent non-executive members. ForBahraini insurance licensees , other thaninsurance firms , Boards must include at least one independent non-executive member.Amended: January 2007HC-1.2.7 [versions up to January 2011]
The Board's
non-executive Directors must comprise a sufficient number of independentDirectors to apply independent judgement to, amongst other things, tasks where there is a potential for conflict of interest or there is a need for impartiality.Amended: January 2007
Amended: October 2007HC-1.2.8 [versions up to January 2011]
In the case of a
Bahraini insurance licensee , which is part of an overseas group, where there is sufficient independent scrutiny of the operations of the firm on a group wide basis, the CBB will consider exempting the licensee from the requirements of Paragraph HC-1.2.6.Amended: January 2007HC-1.2.9 [versions up to January 2011]
The Board must outline in its annual report its criteria and materiality thresholds for the definition of 'independence'. The
Directors must be identified in the annual report asexecutive ,non-executive , orindependent non-executive .HC-1.2.10 [versions up to January 2011]
In assessing independence, the CBB will take into account whether the person concerned is (or has been):
(a) Acontroller or representative of thecontroller of the licensee (see Chapter GR-5 for the definition ofcontroller );(b) A business partner or first-degree relative of anemployee or of a Board member of the licensee concerned, or of a member of the group of which the licensee is a member;(c) A professional adviser to the licensee or the group of which it is a member; and(d) Free of any significant contractual or business relationship with the licensee, or of any of the members of a group of which it is a member.Amended: January 2007HC-1.2.11 [versions up to January 2011]
In assessing the number of
independent non-executive Directors , the CBB will seek to ensure that independent judgement is applied to matters such as Board remuneration and audit issues.Amended: January 2007HC-1.2.12 [versions up to January 2011]
The appointment of Board members is conditional on the approval of the CBB. (See Section AU-1.2).
Amended: January 2007HC-1.2.13 [versions up to January 2011]
The Board must ensure that collectively it has sufficient expertise to understand the important issues relating to the operation and control of its company.
HC-1.2.14 [versions up to January 2011]
It is not expected that every Board member is proficient in all areas, but collectively the Board is expected to have the required expertise. There should also be agreed-upon procedures by the Board for
Directors to take independent advice if necessary at the licensee's expense. The CBB also expects Board members to undertake relevant training on a regular basis to help them fulfill their responsibilities asDirectors .Amended: January 2007HC-1.2.15 [versions up to January 2011]
The Board must periodically assess its composition and size and, where appropriate, reconstitute itself and its committees by selecting new
Directors to replace long-standing members or those whose contributions to the licensee or its committees is not adequate.Amended: July 2008HC-1.2.16 [versions up to January 2011]
A Board member may have a maximum of two Directorships of financial institutions inside Bahrain. However, two Directorships of licensees within the same category of licensees would not be permitted.
Insurance firms may approach the Central Bank for exemption from this limit where the Directorships concern financial institutions within the same group.Added: July 2008HC-1.3 HC-1.3 Meetings and Attendance[versions up to January 2011]
HC-1.3.1 [versions up to January 2011]
The Board must meet sufficiently often to enable it to discharge its responsibilities effectively, taking into account the
insurance licensee's scale and complexity.HC-1.3.2 [versions up to January 2011]
The CBB expects that the scale and complexity of most licensees will require meetings to be held at least quarterly (as required by the Companies Law 2001). For the largest, most complex licensees, more frequent Board meetings may be more appropriate.
Amended: January 2007HC-1.3.3 [versions up to January 2011]
Board members must attend at least three-quarters of all Board meetings held during any twelve-month period in person. Board rules must require members to step down if they are not actively participating in Board meetings.
HC-1.3.4 [versions up to January 2011]
The CBB expects Board members who fail to attend at least three-quarters of all Board meetings in any twelve-month period to step down, unless the Board is able to satisfy the CBB that there are valid reasons for the
Director concerned to remain a Board member.Amended: January 2007HC-1.3.5 [versions up to January 2011]
At least half the Board meetings of
Bahraini insurance licensees in any twelve-month period must be held in the Kingdom of Bahrain.HC-1.3.6 [versions up to January 2011]
The Board must be supplied in a timely manner with information in a form and of a quality appropriate to enable it to discharge its duties. The Board must also maintain adequate records of its meetings, such that key decisions and how they are arrived at can be traced.
