The Governance of Insurance Undertakings

This chapter aims to analyse the current role played by insurance undertakings and their senior managers—with a specific reference to the Italian, French, Spanish and British insurance industry, taking into consideration the important changes introduced by the Solvency II framework.

In doing so, the study identifies features of the international regulation of insurance development based on the recommendations of the International Association of Insurance Supervisory (IAIS) and the Directives of the European Union (EU).

The board delegates the running of the business to the senior managers, expecting them to operate on behalf of the company’s interests.

The literature has identified several problems resulting from this relationship.

We intend to consider the internal behaviour affected by the board-senior managers’ relationship, by looking for direct connection between the elements of senior managers behaviours’ and the organisational and operational structure of the enterprise.

Inside the theoretical framework and given the existing related literature, our work aims to answer the above research question.

According to our statements, it will be demonstrated that, with specific focus on the management sector, there are still wide possibilities for improvement and more studies concerning board-senior managers relationship.

The risk management system and the risk culture pertain to the organisation of the insurance undertaking and face the risk, which is a multifaceted concept challenging such an organisation. This chapter analyses the perimeter of the risk management system to identify the risks that fall within this system and the persons who, within the insurance undertaking, are responsible for ensuring an effective risk management system to the supervisory authority. The chapter also investigates how corporate bodies can assess the head of the risk management function and the risk management system can incorporate risk culture. Lastly, the chapter illustrates concrete actions the persons with the ultimate responsibility of the risk management system can perform to comply with the task to promote, implement and monitor the risk culture.

This chapter is devoted to the role and significance of the compliance function in an insurance undertaking. This chapter presents selected models of compliance functions in European insurance undertakings. The main assumption of the chapter was an attempt to determine the importance of the compliance function in the process of managing the risk of non-compliance by means of the functioning and organisation of this unit within the structures of an insurance undertaking.

The provisions on remuneration policies and practices under the Solvency II framework have been recently supplemented by an Opinion published by the European Insurance and Occupational Pensions Authority. The lack of any high-level standard in this respect in the Directive and the open character of most of the principles and orientations entailed in these instruments have led to a landscape of different national implementation rules, which also need to be connected to the different corporate governance provisions of each Member State.

This chapter aims to analyse the European provisions about remuneration in the insurance industry and connect them first to those provided for the banking sector, and then to the Member States regimes that arise from both the implementation of the EU policies and the international rules, with the purpose of pointing out the weaker aspects of the existing regulation and proposing some possible ways for improvement.

This chapter examines the corporate governance regime for insurers in Singapore. Singapore aims to be a global hub for insurance and reinsurance in the Asia Pacific region, and as an international financial centre it currently hosts a mixture of local and international insurers and reinsurers serving different market sectors. However, the domestic insurance market is small, and insurers registered in Singapore come from many countries and provide products and services to many businesses and individuals outside the city-state. This presents challenges to the sole financial regulator, the Monetary Authority of Singapore (MAS), in implementing and enforcing corporate governance standards on various (re)insurers, many of which are part of larger overseas insurance groups. What should be the way to impose corporate governance standards on various types of (re)insurers? This chapter addresses these questions in the context of Singapore. The general regulatory concerns over corporate governance standards and Singapore’s corporate governance regimes for insurers are first introduced. Specific corporate governance issues are then examined, including the implementation of standards for non-domestic insurers or a branch or subsidiary of a larger insurance group from overseas, and the governance of captive insurers and reinsurers. Singapore’s approach is then discussed and the effectiveness of corporate governance regulations for insurers is assessed. Empirical evidence is presented when data are available.

In this chapter, largely finalised before the presentation of a legislative proposal for a European Insurance Recovery and Resolution Directive, on September 2021, recovery and resolution frameworks of insurance companies and insurance groups are discussed. Currently, the insurance regulatory framework at the European level (Solvency II) does not contain a fully developed framework with respect to recovery and (orderly) resolution such as the Bank Recovery & Resolution Directive and the Single Resolution Mechanism. Recent developments at the international level on the initiative of the Financial Stability Board and International Association of Insurance Supervisors are discussed. It is the expectation that the Solvency II 2020 review will introduce minimum harmonising regulatory standards at the European level with respect to the recovery and resolution of insurers. In this chapter, the assumption is made that the legislative proposal of the European Commission will be based on the technical advice, provided by EIOPA in the context of the Solvency II 2020 review. Therefore, this chapter discusses this technical advice in some detail. Recovery and resolution frameworks, particularly ex-ante planning, requires insurance companies and insurance groups to expand their focus from the regular going concern focus to adverse circumstances, including the ability to recover and to be resolved in orderly manner. The chapter assesses the consequences this change of focus might have on the governance of insurance companies and groups.

Insurance companies often need to go through restructuring for various reasons. Such restructuring can happen in company law through the mechanism of M&A, or under EU legislation via portfolio transfer (see e.g. Article 14 of Directive 2002/83/EC and Article 12 of Directive 92/49/EEC in the field of non-life insurance). This chapter discusses reorganising, restructuring and winding-up of insurance companies, as well as insurance portfolio transfers by means of company law mechanisms (M&A) and under the Cross-Border Mergers Directive, as well as under the Solvency II Directive. It then goes on to discuss the position under Greek law, and uses as a case study the winding-up of Aspis Pronia in 2009 and the transfer of the insurance undertakings’ portfolios. The analysis will allow us to identify that the level of insurance portfolio transfers harmonisation in the EU is not as high as expected, and that a common framework and harmonisation is needed.

Mergers and acquisitions (M&A) involve transactional risks, no matter how extensive and accurate the due diligence process is. This raises the question as to how transacting parties can be protected. Representations and warranties and indemnification provisions as well as escrow requirements, typically included in the acquisition agreement, may often prove to be inefficient and inadequate to this end. When negotiating these terms, transacting parties clearly have contrasting interests, and there could also be cases, especially in public company transactions or distressed sales, where the buyer may have no effective remedies against the seller after the closing.

To overcome problems associated with seller’s indemnities, transacting parties increasingly avail themselves of some innovative insurance products, generally known under the catch-all name of “transactional insurance,” that provide coverage for risks arising out of extraordinary corporate transactions, including risks related to breaches of representations and warranties, tax liabilities, pending or potential litigation and other contingent liabilities.

This chapter explores the role that insurance can play in managing transactional risk, discussing whether it may represent an efficient alternative to more traditional, contractual solutions like indemnity and escrow requirements. The discussion suggests that transactional insurance can serve as an effective risk-transfer tool in M&A, which may act as a supplement or also a substitute for seller indemnity obligations. By spreading transactional risk, insurance can facilitate M&A transactions and enhance the overall social benefit, providing economic security at a fraction of the cost that it would take for transacting parties to protect themselves. No problems of adverse selection or moral hazard peculiar to the M&A context seem to arise and a steadily increasing use of insurance in M&A can be expected.

Recent developments in FinTech and RegTech marked the EU’s pivot towards a digitally driven Capital Markets Union and a concomitant algorithmic turn in EU financial supervision under the leadership of the three European Supervisory Authorities (ESMA, EBA, EIOPA). Starting from the premise that the EIOPA’s relevant initiatives are driven from the Authority’s normative and institutional environment as well as the perceived technological affordances of RegTech, this chapter provides a ‘reality check’ of the algorithmic future of EU financial supervision in the field of insurance as an aspect of EU financial markets’ governance. On the one hand, it finds that an important blind-spot in the EIOPA’s agenda is the absence of a concrete plan for a system of digital reporting. On the other hand, it examines what it takes to set up a system of digital reporting. To that end, it focuses on three interrelated issues: The technology that will be required to provide the infrastructure of digital reporting and its limitations, difficulties with the conversion of regulatory content into code, and issues of reporting architecture and governance. The ultimate objective of this chapter is to inform the agenda of the digital transformation of EU financial market oversight in anticipation of future challenges while relevant policy and legal debates are still on-going.

Financial reporting obligations for financial institutions, including insurance companies, have increased in recent years and insurers needs to stay up-to-date on the latest revisions of International Financial Reporting Standards and data reporting requirements and to comply with it. Many of these reporting obligations on listed and large non-listed insurers will benefit the insurance industry in the long term but it is challenging and costly task for insurance companies. The complexity of organizing high-quality data, transparent and structured reporting processes for different purposes (e.g., financial and regulatory reporting, CSR reporting, and many other types of reporting at local level) with internal and external stakeholders within a specified time frame, have become a strategic initiative, value-based investment, and opportunity for growth of insurance companies. To meet the various reporting requirements while overcoming reporting challenges, insurance companies need to ensure effective data governance and oversight in their reporting processes, which require considerable staff resources, and expertise in a wide variety of area, including appropriate IT architecture setup. In this chapter, we will analyze financial reporting obligations for insurance companies and evolution of the international accounting standards for the insurance industry. Moreover, we will discuss some practical issues facing insurers to comply with different regulatory, financial, and business reporting requirements to fulfill their reporting obligations.

This chapter examines recent developments in the regulation of insurance claims handling in the United Kingdom and in Australia. It commences by reviewing the relevant Insurance Core Principles developed by the International Association of Insurance Supervisors which articulate the standards that national supervisors should implement to effectively regulate the handling of claims and the resolution of disputes with policyholders. From this basis, it then examines the various rules developed by the Financial Conduct Authority to regulate claims handling in the United Kingdom, and through the use of case studies discusses how compliance with these rules has been monitored and enforced. The chapter then examines the legal framework for regulating insurance claims handling in Australia, which has been significantly expanded following the implementation of the reforms recommended by the 2019 Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. The chapter concludes that the approaches adopted in these two jurisdictions could provide a model for similar jurisdictions considering similar regulatory challenges.

To achieve the corporate purpose of a company, it is necessary to follow the regulations that exist in its respective sector, which include not only the adoption of policies and protocols, but also the prevention of fraudulent activities, which can be done through a sufficient knowledge of the customer. It is of greater relevance in the case of insurance companies, which must sufficiently know their client, taking into account their transactions and activities, since the internal decisions that the company takes in relation to the risks it assumes are based on its own corporate governance policies.

For this purpose, this chapter proposes the alternative of implementing RegTech tools through the adoption of a Single Business Registry. This registry contains all the required information from a company, including financial statements for the respective periods, which can be supplemented with records already existing in a country, as this would facilitate regulatory compliance.

The regime of obligations arising under insurance relationships, as expressed in Art. 7 of the Rome I Regulation is, however, relatively complex. The criticism seems legitimate of academic authors who quite clearly express their negative attitude to the wording of that provision, calling it a “labyrinth” or even “pandemonium of international law.” As a result of the not particularly transparent nature of that regime, it can be doubted if in all situations the “weaker party” was afforded due protection. Negative answer to that question prompts a search for other solutions which allow to achieve the effect of conflict of laws designation of a law giving effect to the postulate of protecting the weaker party to the insurance relationship. The purpose of the study is to indicate, in the first place, the existing criteria of the division into public law and private law in the context of private international law. The second purpose is to analyze the phenomenon of mutual interpenetration of private and public law in the private international law of insurance contracts. The purpose of considerations was to indicate the mutual interpenetration between EU provisions of public and corporate law, as well as the impact of national provisions of the same type on private international law.