Insurance company directors can serve maximum 2 terms

Board directors of insurance companies can serve a maximum of two terms, according to the Directive on Corporate Governance for Insurers 2016 which went into effect on Wednesday. The revised directive of the Insurance Board (IB) follows a similar provision inserted by Nepal Rastra Bank (NRB) in the new Bank and Financial Institutions Act (Bafia), which is currently being discussed by the parliamentary Finance Committee. When the government included the provision in Bafia, lawmakers having interests in banking institutions had tried to get it removed. The resulting controversy forced the House to send the bill back to the Finance Committee. According to the new directive, a new board director must be appointed within 35 days after the position falls vacant. The new directive has retained the provision in the previous version fixing a maximum of two terms for the chief executive officer (CEO). IB Chairman Fatta Bahadur KC said they had fixed a maximum of two terms for both board directors and the CEO. “The fixed term could help prevent the influence that these people can gain when they work at the top level for a long time,” said KC, adding that the two-term rule would be applicable for new entrants. The directive has also fixed the minimum qualification for board members and the CEO. In order to become a board director of an insurance country, candidates have to possess a bachelor’s degree in any subject. CEO hopefuls should hold a Master’s degree or be a Chartered Accountant with at least five years’ working experience in insurance. Candidates with a banking and financial sector background should have a minimum work experience of eight years. Earlier, there was no mention of the academic qualification of directors and the CEO. KC said they introduced the provision of minimum qualification with the aim of making the top management team more accountable to the insurance business and their clients. “By learning lessons from the past, we have tried to strengthen human resources in the insurance business,” he said. The IB said a number of insurers had been found to have appointed candidates with a low academic qualification to the post of advisor. “In the new provision, such persons have been barred from holding positions at the decision making level,” said KC, adding that advisors would not be allowed to be involved in daily operations in the future. Likewise, the new directive has declared that a CEO’s salary cannot be more than 15 times the pay of the junior-most employee. If an executive has a proven record of delivering extraordinary efficiency to strengthen the financial position of the company, the payment scale can be raised to 25 times upon the recommendation of the annual general meeting. The directive has instructed insurers to provide their staff with minimum salaries as per the payment scale fixed by the government. It has also barred board members from acquiring shares and debentures issued by the company during their tenure and up to one year after they leave their jobs. Insurance companies have to conduct board meetings at least six times a year. The gap between two consecutive meetings should not exceed three months. Likewise, the new regulation has also barred the IB chairman from holding any position in insurance companies. Similarly, IB board members cannot work in insurance companies in any position for at least two years after leaving the IB. Source: ekantipur