MANILA, Philippines–Limiting the term of insurance firms’ independent directors to five consecutive years is expected to promote “good governance” in the industry, Finance officials said on Thursday.
In a statement, Finance Secretary Cesar V. Purisima lauded the Insurance Commission’s (IC) issuance of Circular Letter No. 2014-49 last year, which aligned IC’s term limitation policies with those of the Securities and Exchange Commission or SEC, another DOF-attached agency.
“We applaud the Insurance Commission for taking yet another bold step toward good governance in a much-needed regulation for private companies providing life and non-life insurance. Aligning and standardizing good governance policies across all attached agencies of the Department of Finance are a key priority as we aim to institutionalize reforms,” Purisima said.
Under CL 2014-49, which governs the election of independent directors in both life and non-life insurance firms, “independent directors can serve as such for five consecutive years, provided that service for a period of at least six months will be equivalent to one year, regardless of the manner by which the independent director position was relinquished or terminated.”
“After the completion of the five-year service period, an independent director shall be ineligible for election as such in the same company unless the independent director has undergone a ‘cooling off’ period of two years, provided, that during such period, the independent director concerned has not engaged in any activity that under existing rules disqualifies a person from being elected as independent director in the same company,” the circular, which took effect last Jan. 2, further read.
While a reelected independent director can serve for another five consecutive years in the same company after the “cooling off” period, those who have already served for 10 years “shall be perpetually barred from being elected as such in the same company, without prejudice to being elected as independent director in other companies outside of the business conglomerate,” according to the circular.
“Imposing term limits on independent directors promotes infusion of new ideas and perspectives in the boards of directors. This is consistent with our government’s philosophy that good governance must extend from the highest ranks of public service to private companies that serve our people,” Insurance Commissioner Emmanuel F. Dooc was quoted by the DOF as saying.
CL 2014-49 was issued to implement Section 437 of Republic Act No. 10607 or the Amended Insurance Code.