The (legal) reinforcement of corporate governance in the (re)insurance sector is a fact. (Re)Insurance companies are required to comply with further and more in-depth corporate governance requirements. A re-assessment of the current governance structures of (re)insurance companies appears to be a necessity.
On 23 March 2016, the Act of 13 March 2016 regarding the status and supervision of (re)insurance companies was published in the Belgian Official Gazette (hereafter the “Act”). It entered into force that same day
The main purpose of the Act is the transposition of the Solvency II Directive of 25 November 2009, which aims to remedy the shortcomings in the Solvency I framework and is based upon the following three pillars:
The Act has resulted in a fundamental revision of the Belgian legislation regarding insurance and re-insurance companies and more in particular the framework for prudential supervision. It has replaced the Act of 9 July 1975 on the supervision of insurance companies and the Act of 16 February 2009 on re-insurance companies.
The Act aims to:
Proper governance, which is an essential element for the proper functioning not only of the (re)insurance company itself but also for the financial system, may contribute to these objectives.
Similar to the old framework on prudential supervision, the supervision mechanism regarding the (re)insurance companies consists of the supervision by the National Bank of Belgium (Book II, Title IV, Chapter I), which is supported by their supervision, (and related reporting requirements towards the National Bank of Belgium,) and carried out by accredited auditors on the other hand (Book II, Title IV, Chapter II).
The main rules regarding governance can be found in the section regarding access to the business/licensing requirements (Book II, Title I, Chapter II of the Act), but also in the section determining the operating conditions (Book II, Title II, Chapter III of the Act). The governance requirements as they existed under the old framework are re-enforced in the Act. Although some governance requirements remain unchanged compared to the old framework, the Act has also further specified certain existing governance principles and introduced some new governance requirements.
In particular and amongst others, the re-enforced governance framework includes the following aspects:
The National Bank of Belgium, as supervisory body, is currently working on a circular letter containing its prudential expectations with respect to the governance of (re)insurance companies. (Re)Insurance companies and groups of (re)insurance companies under Belgian law in principle (there are some exceptions) will fall within the scope of application of the circular letter.
The draft circular letter explains it has five objectives, specifically:
The circular letter contains fifteen chapters and will tackle topics such as the management structure, risk management, internal control, outsourcing, remuneration, integrity, whistleblowing, conflicts of interest, and evaluation of the effectiveness of the governance system. Per chapter, an overview of the applicable legal framework is provided. The sub-chapters elaborate on the specific governance requirements, reflecting the legal requirements contained in the Act, the EIOPA guidelines and the additional recommendations and expectations of the National Bank of Belgium.
It can be expected that the circular letter will be published and come into force in the near future.