Mutual Corporate Governance – best practice Future Challenges

1. Mutual Corporate Governance – best practice • Future Challenges • Strategic review of the future of ICMIF

2. Corporate Governance codes Canada Canada Cooperative Act Germany German C G Code Japan Different Cooperative Society Laws Malaysia Prudential framework of C G for Insurers Netherlands Tabaksblat Code New Zealand Mutual Insurance Act Russia Code of Corporate Conduct Singapore Singapore proposed Code of Corp Gov South Africa King II Report on C G for SA UK Combined Code on C G Annotated Combined Code - Mutual insurers USA Sarbannes Oxley

3. Corporate Governance – regulation • Mostly “codes” not law • Written for listed companies • Myners review (UK) mutual life offices • Annotated combined code for mutual insurers • French mutual insurer corporate governance guidelines - GEMA • EU work in progress • Its coming!!

4. Corporate Governance in Practice • Governance Metrics International (GMI) • March 2005 sample of 3,220 global companies • Strong link between good governance and good stock performance • 34 companies received maximum 10 they outperformed the S&P 500 by an average of 16% over 5 years • Independent directors increasing to 55% (33,000 directors) • Decrease in number of joint CEO/Chairman positions – 39% • Increase in board self evaluations • Best practice in UK and Canada

5. Global Governance Rating (GMI)

6. Founded September 2004 by 13 mutuals • Currently 25 members (all ICMIF members are AMI members) • Represents 4% of UK insurance but 97% of mutual insurance industry • Over 100 mutuals in UK many very small friendly societies • AFS – Association of Friendly societies • Ian Geden, NFU Mutual, chairman (also ICMIF board member) • AMI run by ICMIF staff • Given role to self regulate the mutual insurance industry by the UK Government in January 2005

7. Background to CG review Equitable challenged under its treatment of Guaranteed annuity rate (GAR) policies 1999 House of Lords finds in favour of GAR policyholders Jul 2000 Aug 2001 Penrose inquiry commissioned by Government Mar 2004 Penrose report released recommending independent review corporate governance of mutual life offices (Myners review) Dec 2004 Final report of the Myners Review released April 2005 Annotated combined code for mutual insurers Dec 2005 Best practice guidelines in corporate governance for mutual insurers

8. Myners Review - Terms of Reference • Consider the governance framework for mutual life offices in comparison with that for comparable companies (and, where relevant, for listed companies). • Where appropriate, bring forward recommendations to ensure that Boards of mutual life offices are as accountable to their members as Boards of comparable companies are to their shareholders. • As part of this, the review will examine: • The level of member involvement in the governance of mutual life offices. • Board accountability for mutual life offices; and • The level of regulation by the FSA (UK regulator) to which mutual life offices are subject.

9. Myners Review – Main Conclusions • Sector has done much to address issues raised in the Penrose Report. • Some life mutuals did not adhere to sufficiently high standards of governance. • The members’ voice is relatively weak compared to that of shareholders. • The level of publicly disclosed information is lower than that of equivalent proprietary/stock companies.

10. Myners Review – Main Recommendations Life mutuals should: • Adhere to the Combined Code • Produce an appropriate directors’ remuneration report and conduct an advisory vote on this at the AGM. • Notify members of major transactions and obtain their consent in the case of very large transactions. • Produce an Operating Financial Review OFR (large mutuals). • Enhance the induction, training and development procedures for Non-Executive Directors (NED’s). • Enhance relations with members – including fair and accessible voting.

11. Myners Review – Role of the AMI/AFS Producing: • Annotations to the Combined Code • Guidance for small Friendly Societies in relation to the annotated Combined Code • An induction and professional development programme for non-executive directors • Guidance that promotes best practice member relations • Monitoring and reporting on compliance of the annotated Combined Code

12. AMI Objectives • Meet the 17 recommendations that are set out in the Myners Review; • Set the framework for mutual insurers and friendly societies to ensure members rights are identified, adhered to and promoted; • Help ensure that all interested parties, including the Government, FSA, and Press agree that life mutuals and friendly societies are at least as strong as plcs in terms of governance and protection of policyholder rights; and • Give confidence to the public that mutuals are trustworthy and a value proposition.

13. Myners Review – Role of the AMI/AFS AFS Board AMI Board Steering Group (10 members) Working Group 1 ANNOTATED COMBINED CODE Working Group 5 MONITORING & REPORTING Working Group 2 ACCOUNTING & DISCLOSURE Working Group 3 MEMBER RELATIONS WorkingGroup 4 NED INDUCTION & DEVELOPMENT Best practice guidelines focused on the 17 recommendations

14. Annotated combined code (ACC)1. The Board • MP - The company should be headed by an effective board, which is collectively responsible for the success of the company • Does the board set the strategic aims • Annual report includes statement of how the board operates • Annual report should list directors bio’s and who are on nomination, remuneration and audit committees and how many meetings they attended in the year • Meetings without the CEO or chairman present • Appraisal of the CEO and chairman’s performance • Individual directors appraisals

15. Annotated combined code (ACC)2. Chairman and Chief executive • MP - Clear division of responsibilities between board and the executive • Chairman responsible for ensuring directors receive accurate timely and clear information • The chairman and chief executive should not be the same person • Chairman, on appointment, must be independent • A chief executive should not go on to be a chairman of the same company.

16. Annotated combined code (ACC)3. Board balance and independence • MP - Board should include a balance of executive and non-executive appointments • Is the board the right size and does it have the appropriate skills and experience for the business • At least half the board (excluding the chairman) should be independent • Board needs to disclose who and why directors are independent (executive directors are not independent) • Board needs to appoint a Senior Independent Director (SID) • Board members serving longer than 9 years are subject to more stringent independence criteria • Did the NED’s meet with the regulator (FSA)?

17. Annotated combined code (ACC)4. Board appointments • MP - There must be a formal, rigorous and transparent procedure for appointing new directors • Nominations committee role, most should be independent • Recruitment process should involve appropriate sources of objective external opinion • Work of the nominations committee should be disclosed in the annual report included methods used in the recruitment process

18. Annotated combined code (ACC)5. Information and professional development • MP - Board should receive information in a timely manner and of a quality appropriate to enable it to discharge its duties. • The roles of company secretary and chief executive should be split • The company secretary should be appointed/removed by the chairman and report to the chairman • NED’s should have access to external independent advice at the company’s expense • The secretary is responsible for facilitating NED’s induction and training

19. Annotated combined code (ACC)6. Performance evaluation • MP – Does the Board undertake a formal and rigorous annual evaluation of its own performance and that of its committees and individual directors • The annual report should state how this evaluation has been conducted • Appraisal of the chairman should be lead by the SID

20. Annotated combined code (ACC)7. Remuneration • MP – Are the remuneration levels of directors commensurate with the roles and are they structured to reward performance • Are the remuneration performance-related elements aligned with members interests • Notice or contract periods should not be longer than one year • Remuneration committee should recommend directors remuneration • Members of the remuneration committee should be independent NED’s • Remuneration committee must disclose its terms of reference in the annual report together with a statement explaining how it works

21. Annotated combined code (ACC)8. Accountability and Audit • MP – the board should annually conduct a review of the effectiveness of the company’s internal controls including financial, operational, compliance and risk management systems • Audit committee should consist of at least three members who are independent NED’s • At least one member should have relevant financial experience • The audit committee must disclose its terms of reference and report to the members in the annual report

22. Annotated combined code (ACC)9. Relations with members • Were fair and accessible voting arrangements in place for the AGM • Does the company have a member relations function? • How are members views communicated to the board? • Is there a member relations strategy in place? • How are major transactions reported to the members? • Are proxy votes allowed? • Are results of AGM voting published? • Are the members able to give an advisory vote on the chairman and chief executive salary?

23. Reality of the ACC • Principle of comply and explain • Partial exemption for small insurers • It is a self-regulated code • AMI will report to the UK government on progress within the sector by 2008. Lack of progress will result in legislation. • AMI will promote best practice though: • Compliance as requirement of membership • Peer group pressure • 12 page detailed compliance questionnaire signed off by the board • Annual monitoring and reporting to UK government and regulator • UK financial press will constantly push for improvement aka the Building societies • The UK regulator will view the comply and explain statements with close scrutiny

24. Best Practice Guidelines • Board composition • Board induction and professional development (AMI developed courses) • Annual report disclosure with examples of: • Corporate governance statement • Remuneration report (including remuneration of each director) • Audit and nomination committee reports • Comply and explain statement • Summary financial report for all members • Definition of large transactions • What should be included in a member relations strategy • What encompasses the member relations function • Member communications what, when and how to communicate • Obtaining members views, member panels, representative systems, websites • Facilitating discussion among members • Fair and accessible voting procedures

25. The UK model as a global best practice? • No national model should apply directly to other nations • It is the only model in the world for mutual insurers • Many other countries are closely monitoring the UK situation • Many other regulators (through IAIS) are monitoring the progress • It is better to self-regulate than be regulated

26. 2. Future Challenges • Increasing regulation • Increasing capital requirement • Increasing customer choice • Increasing risks • Increasing reliance on technology

27. 3. Future of ICMIF • Five year strategic review of ICMIF • Must address the key challenges • SRG – 7 board members representing all regions • Rene Campos (Seguros Multiples) and Kathy Bardswick (The Co-operators) from the AAC/MIS region • Two meetings 29 June and 20 September • Input directly from members, letters or meetings • Present report to the Board in October • Present to the Membership at Singapore conference in November

28. My view of the new strategy • Business solutions • Communication • Information, intelligence and best practice • Strategic issues • Member service

29. Business Solutions • Access to capital • Medium and small insurers subordinated debt program • Small insurers Allnations capital fund • Reinsurance • Collective purchasing WOOPs • training • Best practice consultancy services • Corporate governance • Mutual business combinations • Member to member consultancy • Mutual funds and investment

30. Communications • Internally to members • Closer to the members and their needs • Member contact person • Regional association meetings • Timely and informative newsletters • Online member directory • Website • Through members own staff communications • Externally to the industry – promotion of the values of mutuals and cooperatives • Regulators national and international (IAIS, OECD, IASB, WB) • Insurance Industry press and events

31. Information, Intelligence and Best Practices • Knowledge of latest developments and information • Intelligence committee • Optimize the economic intelligence shared between members • Mutual and cooperative best practices • Through ICMIF conferences • Through networks • Through research reports • Resource centre – supported by members • Database of members best practices • Linked with communications deliverables • Training • Existing simulations and management course • Specific NED’s training

32. Strategic Review • Development • Closer liaison with regional associations • Closer liaison with other international development institutions, ICA, WOCCU, ILO • Specific and targeted and coordinated approach to development • ICMIF’s governance • Review of Board and committees responsibilities • transparency • Business partners • AISAM • National and international mutual trade associations

33. We are here to serve you the members

34. Thank you • Gracias • Obrigado • Shaun@icmif.org