Abstract
Corporate governance is the set of rules, be they legal or self-regulatory, practices and processes pursuant to which an insurance undertaking is administrated. Good corporate governance is not only key to establishing oneself and succeeding in a competitive environment but also to safeguarding the interests of all stakeholders in an insurance undertaking. It is insofar not surprising that mandatory requirements on the administration of insurance undertakings have become rather prolific in recent years, in an attempt by regulators to protect especially policyholders against perceived risks hailing from improperly governed insurance undertakings. In Germany this has been regarded by many undertakings as an overly paternalistic approach of the legislator, especially considering that the German insurance sector has experienced for decades if not centuries a remarkably low number of insolvencies and that German insurers were neither the trigger nor the (especially) endangered actors in the financial crisis commencing in 2007. Notwithstanding the true core of this criticism, that the insurance industry was taken to a certain degree hostage by the shortcomings within the banking sector, the reform of German Insurance Supervisory Law via implementation of the Solvency II-System has brought many advances in the sense of better governance of insurance undertakings and has also brought to light many deficiencies that the administration of some insurance undertakings may have suffered from in the past, which are now more properly addressed.
Highlights
It is for the executive board to structure the organisation of the undertaking in such a way—and for the supervisory board to make certain this is done in an effective manner—that the insurance undertaking is endowed with an internal control and management system principally based on the four eyes-approach as the first line of defence to check the compliance etc. of the daily work of all employees
As a second line of defence supervisory law requires the creation of three so-called key functions—such requirement has in a reduced extent existed in Germany for several years since the enactment of sec. 64a VAG old version in 2008 and the issuance of the MaRisk VA circular by the German supervisory authority BaFin[1] in 2009, and has been reinforced by the transformation of the Solvency II Directive into German law—i.e. the independent risk management function, the compliance function and the actuarial function
Irrespective of the type of corporation an insurance undertaking has chosen, the supervisory minimal requirements of the governance of an insurance undertaking are regulated by secc. 23–34 VAG, artt. 258–275 Solvency II Delegated Reg.[9], the EIOPA Guidelines on the System of Governance[10] and the MaGo-circular issued by the German supervisory authority BaFin[11]
Summary
Under German (Insurance) Corporate Law and especially German Insurance Supervisory Law the term governance is given a larger meaning than just the ultimate responsibility of the executive board for the steering of the undertaking and the responsibility to supervise and check such steering activity by the supervisory board. 64a VAG old version in 2008 and the issuance of the MaRisk VA circular by the German supervisory authority BaFin[1] in 2009, and has been reinforced by the transformation of the Solvency II Directive into German law—i.e. the independent risk management function, the compliance function and the actuarial function These functions in their turn, this is especially true for the two former, control if the governance system (on the lower level and globally, this means the former two supervise indirectly the executive board [and the supervisory board]), is effective concerning the aspects they “supervise”. In the present we will, in line with the questionnaire focus on governance issues on the highest level of the executive board and supervisory board unless a more global focus seems appropriate
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