ISLAMABAD (January 31 2003) : The Securities and Exchange Commission of Pakistan (SECP) has introduced the code of corporate governance for insurance companies in order to promote good business practices and bring uniformity throughout the insurance industry in Pakistan.
The SECP has taken this initiative under its powers under Section 60 of the Insurance Ordinance 2000, as a regulatory authority for the insurance sector.
The SECP believes that good governance is of equal importance in this sector as in any other sector of the corporate world.
A high standard of corporate structure established by registered insurers is an essential step in instilling the confidence of policyholders and encouraging more stable and long-term development of the insurance industry in Pakistan.
An insurance industry with a high standard of corporate governance will also help to enhance the status of Pakistan as a regional financial market.
Since the inception of Insurance Division in SECP as a consequence of the promulgation of Insurance Ordinance, 2000, the focus of the regulatory measures taken by the SECP has been on protection of policyholder's interests and development of insurance industry in Pakistan.
The SECP has been particularly keen toward improved governance structure to ensure transparency and accountability in the insurance sector.
The code has been developed along the lines of the Code of Corporate Governance already issued for listed companies operating in Pakistan with necessary changes keeping in view the diversified corporate structure of the insurance industry in Pakistan.
The code primarily aims to establish a system whereby a company is directed and controlled by its directors in accordance with the best practices to protect the interests of stakeholders including the policyholders.
It proposes to restructure the composition of board of directors in order to introduce broad-based representation of executive and non-executive directors.
The Code emphasises openness and transparency in corporate affairs and the decision-making process and requires directors to discharge their fiduciary duties in a transparent, informed, diligent and timely manner.
The salient features of the code include setting up of under writing, claims settlement, reinsurance and co-insurance committees as well as audit committee, internal audit and control systems, mandatory rotation of auditors after five years, on auditors as well as on appointed, not to hold, purchase, sell or take any position in shares of the company.
The purpose of the code is to establish and enhance the integrity and general security of the insurance industry through providing assistance to registered insurers for the evaluation and formulation of their internal practices and procedures.
The Code has been divided into eight sections; BOD, CED and Company secretary, corporate and financial reporting frame work, Auditors and not to hold shares, Committees, Internal audit, External auditors, Compliance with the code of corporate governance for registered insurers, the SECP is confident that the Code would help achieve transparency, capacity building and accountability in the insurance sector.
The Code progressive in nature and can be reviewed in the light of changes in circumstances.