An overview of the Corporate Governance Guidelines for Insurance and Reinsurance Companies in Nigeria, 2021

Clause 2.0 (ii) of the NAICOM Guidelines requires Insurance/reinsurance companies not to have less than seven (7) BOARD members and more than fifteen (15) members on their Boards.

The NCCG does not specify the minimum or maximum number of directors rather, clause 2.1 provides that the Board should be of a sufficient size to effectively undertake and fulfil its business; to oversee, monitor, direct and control the Company’s activities and be relative to the scale and complexity of its operations.

Section 2.0 (iii) of the NAICOM Guidelines specifies the percentage of NEDS that reinsurance and insurance companies should have.

The Boards of reinsurance and insurance companies are to consist of Executive and Non-Executive Directors out of which not more than 40% of the members must be in the executive capacity.

This means that at least 60% of the board members must be NEDs.

The NCCG does not specify any percentage or ratio of NED to EDs, but clause 2.3 provides instead that there should be an appropriate mix of Executive, Non-Executive and Independent Non-Executive members such that majority of the Board are Non-Executive Directors; while recommending that most of the NonExecutive Directors should be independent

Section 2.0 (vii) of the NAICOM Guidelines requires the membership of Boards to include at least one Independent Director, who does not represent any particular shareholding interest nor hold any business interest.

The NCCG does not specify the minimum number of INEDS a company should have, but it does indicate in principle 2.3 (b), that majority of the Board members should be Non-Executive Directors; while most of the Non- Executive Directors should be independent.

Under section 7.2.2 of the NCCG, INEDs are prohibited from being representatives of a shareholder, but only to the extent that such shareholder has the ability to control or significantly influence Management.

In addition, under section 7.2.1 of the NCCG, an INED may be a shareholder, provided that such INED does not possess a shareholding in the Company, the value of which is material to the holder such as will impair his independence or is in excess of 0.01% of the paid up capital of the Company.

The NAICOM Guidelines specify the tenure of the NEDS, with section 2.0 (viii), requiring Non-Executive Directors not to be re-nominated and appointed for more than 3 terms of 3 years each i.e. a total of 9 years.

The NCCG does not specify the tenure for NEDS. Principle 12.8 simply provides that NEDs should serve for a reasonable period on the Board.

The NCCG however highlights the need for continual injection of new energy, fresh ideas and perspectives. This should be effected by ensuring the periodic appointment of new Directors to replace existing NEDs.

The NCCG allows companies the discretion/flexibility to determine how often they may replace existing NEDs. With regard to INEDS however, under clause 7.2.9, an INED is one who has not served on the Board for more than nine years from the date of his/her first election.

The NAICOM Guidelines contain provisions to ensure adequate representation of minority interests on the boards of public limited companies.

Under clause 2.0 xiii, all Public Limited Liability Insurance/Reinsurance Companies are mandated to “provide a seat for minority shareholder” [SIC] on the Board.

This provision does not specify which minority shareholder should be represented on such boards, the criteria for such appointments or even the number of such appointments.

This may pose difficulties with practical application

The NCCG does not contain any such provisions requiring board representation of minority shareholders.

The protection offered to shareholders under the NCCG, includes ensuring the equitable treatment of shareholders and the protection of their statutory and general rights, particularly the interest of minority shareholders and ensuring that minority shareholders are adequately protected from abusive actions by controlling shareholders.

Under clause 2.1 of the NAICOM Guidelines, each board member is required to attend not less than 75% of the meetings of the Board annually

Under the NCCG, there is no minimum board attendance requirement for directors individually.

Clause 10.2 of the NCCG, however provides that every Director should endeavour to attend all Board meetings, as attendance records of Directors should be among the criteria for the re-election of a Director.

Clause 10.1 of the NCCG, requires the Board to meet at least once every quarter.

Clause 2.2 of the NAICOM Guidelines expands the number of board committees to be established.

In addition to establishing committees responsible for nomination and governance, remuneration, audit and risk management (in accordance with principle 11.1.6 of the NCCG), reinsurance and insurance companies are also required to establish committees responsible for – (a)Finance, Investment and General Purpose AND (b) Compliance.

Under the NCCG, Board Committees responsible for nomination and governance; remuneration, audit and risk management are required to be established.

Clause 4.0 of the NAICOM Guidelines, requires an annual Board performance evaluation to be carried out by an independent consultant to be appointed at the Annual General Meeting.

Under the NCCG, there is no requirement to conduct externally facilitated board evaluation exercises every year. Rather, under clause 14.1 of the NCCG, board evaluations are to be facilitated by an independent external consultant at least once in 3 years.

Under section 5.0 of the NAICOM Guidelines, each insurance/reinsurance company under an insurance group is required to have a separate internal audit unit. Furthermore, under clauses 5.0 (iv), the report of the external assessment of Internal Audit functions is required to be submitted to the Commission not later than 2nd quarter of the succeeding year.

This implies that an assessment of the internal audit function is required to be undertaken every year.

Under the NCCG, the Board has the discretion regarding whether or not to have a separate internal audit function. This is implied in Principle 18.2, which provides that where the Board decides not to establish such a function, internally or outsourced, sufficient reasons should be disclosed in the Company’s annual report with an explanation as to how the Board has obtained adequate assurance on the effectiveness of the internal processes and systems such as risk management and internal control. With regard to external assessments, in contrast with the NAICOM Guidelines, which requires an annual external assessment, under clause 18.6 of the NCCG, an external assessment of the effectiveness of the internal audit function is required to be undertaken least once every three years by a qualified independent reviewer to be appointed by the Board.

The Internal Audit Unit of reinsurance and insurance companies must be headed by a professionally qualified Accountant not below the rank of an Assistant General Manager (AGM) or its equivalent. (Section 5.0 (iii)).

Under section 18.3 of the NCCG, although the head of internal audit is required to be a member of senior management, such person is neither required to be a professionally qualified accountant nor occupy a minimum position of Assistant General Manager or above. What is required, in addition to being a member of senior management, is to be a professional with relevant qualifications, competence, objectivity and experience; and to be registered with a recognised professional body.

Under the NAICOM Guidelines, an External Auditor cannot be appointed for a maximum term of 8 years. Specifically, under section 6.0, the tenure of an appointed External Auditor shall be for period of four (4) years in the first instance. External Auditors may also be reappointed for a further period of four (4) years and no more. In addition, audit teams are required to be rotated at least once every two years.

The tenure for External Auditors under the NCCG is for a maximum period of 10 years.

Under section 20 of the NCCG, external audit firms may be retained for no longer than ten years continuously.

In addition, a rotation of the audit engagement partner is required to be undertaken every five years in order to preserve independence.