On the 1st of April 2022, the Insurance and Pensions Commission of Zimbabwe (IPEC) introduced amendments to the Directive on Systems of Governance and Risk Management for Insurance Companies, 2016. The amendments were introduced as part of IPEC’s ongoing pursuit to improve corporate governance in insurance companies. The amendments were introduced and added in a newly published Directive on Systems of Governance and Risk Management for Insurance Companies, 2022. This article takes a look at the major changes that have been brought about by the amendments, and whether these changes may be seen as a positive move or as tighter scrutiny on insurance companies by IPEC.
The first notable change introduced by the amendments relates to nominee companies and family trusts’ ability to own shares in insurance companies. Under the 2016 Directive, there was a general prohibition on nominee companies and family trusts from owning any shareholding in insurance companies. The provision has now been repealed. Nominee companies and family trusts can now on shares in insurance companies. However, they cannot own significant shareholding (i.e. more than 10% of the issued share capital) without first revealing to IPEC the identity of their ultimate beneficial owner or control information in the case of family trusts. The amendment can be considered a positive. IPEC has set aside its concerns of nominee companies and family trusts owning shares in insurance companies as it had previously considered such entities to be a huge risk because they could easily conceal the details of their ultimate beneficial ownership.
Insurers will also be pleased to note that provisions relating to the composition of their boards of directors have also been amended. Previously, the board of an insurer had to have a minimum of 5 directors, majority of which had to be non-executive. The provision has now been amended by removal of the prescribed minimum of 5 directors. There is no longer a minimum number. All an insurer must ensure is that the majority of its board consists of non-executive directors at all times. Further, the 2016 Directive provided that the principal officer of an insurer had to be an exofficio member of the board with no right to vote at board meetings. The prohibition on the right to vote has been removed. The amended provision simply provides that the principal offer must be an exofficio member only.
Another amendment that has been introduced relates to the functions of the Nomination and Remuneration committees of insurance companies. Under section 4.10.5 (c) of the 2016 Directive, Nomination and Remuneration committees had to undertake due diligence enquiries in respect of directors and senior management to ensure that the directors and senior managers met the “fit and proper person” criteria on an ongoing basis. This has been amended and the Nomination and Remuneration committees now have to undertake the due diligence enquiries to ensure that directors and senior managers meet the fit and proper person criteria after every 5 years.
The standard of qualification and years of experience that a principal officer of an insurer must possess have also been amended. Under the 2016 Directive, principal officers had to simply hold a qualification in insurance or other qualification approved by IPEC, and had to have more than 10 years’ experience in a managerial capacity in the insurance sector. This has been amended and for one to be a principal officer, they must possess a qualification in insurance “minimum a diploma” and must have more than 5 years’ experience in a managerial capacity in in the insurance sector. The amendment can be looked at with mixed feelings. On the one hand it significantly lowers the years of experience that a person must have to be a principal officer. On the other hand the amendment raises the standard of qualification the person must possess. It no longer suffices to hold any insurance qualification to become a principal officer, it must be at least a diploma.
The Directive on Systems of Governance and Risk Management for Insurance Companies, 2022 introduces new corporate governance requirements that may carry mixed feelings to some insurers. On the one hand, we see IPEC taking a more flexible approach towards how insurers can regulate their affairs whilst in some aspects, IPEC has definitely introduced more stringent controls and standards.