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Location: Central Bank of Bahrain Volume 3—Insurance > Archived Part A > DP Dispute Procedures [versions up to 30 September 2012]
  • Archived Part A

    • AU Authorisation

      • AU-5 Information Requirements and Processes

        • AU-5.2 Approved Persons

          • AU-5.2.3 [This Paragraph was deleted in July 2015.]

            Deleted: July 2015
            Amended: July 2007

          • AU-5.2.4 [This Paragraph was moved to Paragraph AU-5.2.2B in July 2015.]

            Moved: July 2015
            Amended: July 2007

    • HC High-Level Controls[versions up to January 2011]

      • HC-A Introduction[versions up to January 2011]

        • HC-A.1 Purpose[versions up to January 2011]

          • Executive Summary[versions up to January 2011]

            • HC-A.1.1 [versions up to January 2011]

              This Module presents requirements that have to be met by insurance licenseesG with respect to:

              a) The role and composition of their Boards and Board committees; and
              b) Related high-level controls and policies.
              Amended: January 2007

            • HC-A.1.2 [versions up to January 2011]

              This Module supplements various provisions relating to corporate governance contained in Legislative Decree No. 21 of 2001, with respect to promulgating the Commercial Companies Law ('Commercial Companies Law 2001'). In case of conflict, the Commercial Companies Law shall prevail. Compliance with this Module does not guarantee compliance with the Commercial Companies Law.

              Amended: January 2007

          • Legal Basis[versions up to January 2011]

            • HC-A.1.3 [versions up to January 2011]

              This Module contains the CBB's Directive relating to high-level controls and is issued under the powers available to the CBB under Article 38 of the Central Bank of Bahrain and Financial Institutions Law 2006 ('CBB Law'). The Directive in this Module is applicable to insurance licenseesG (including their approved personsG ).

              Added: January 2007

            • HC-A.1.4 [versions up to January 2011]

              For an explanation of the CBB’s rule-making powers and different regulatory instruments, see Section UG-1.1.

              Added: January 2007

        • HC-A.2 Module History[versions up to January 2011]

          • HC-A.2.1 [versions up to January 2011]

            This Module was first issued in April 2005 by the BMA together with the rest of Volume 3 (Insurance). Any material changes that have subsequently been made to this Module are annotated with the calendar quarter date in which the change was made: Chapter UG-3 provides further details on Rulebook maintenance and version control.

            Amended: January 2007

          • HC-A.2.2 [versions up to January 2011]

            When the CBB replaced the BMA in September 2006, the provisions of this Module remained in force. Volume 3 was updated in January 2007 to reflect the switch to the CBB; however, new calendar quarter dates were only issued where the update necessitated changes to the actual requirements.

            Added: January 2007

          • HC-A.2.3 [versions up to January 2011]

            A list of recent changes made to this Module is detailed in the table below:

            Module Ref. Change Date Description of Changes
            HC-1.1 01/07/05 Clarification of Board approval required.
            HC-2.2 01/10/05 Corrected numbering of Paragraph.
            HC-4.1 01/10/05 Reordered Paragraphs for better flow of rules.
            HC-A.1.3 01/2007 New Rule introduced, categorizing this Module as a Directive.
            HC-B.1.2 01/2007 Clarified that overseas insurance licensees must also comply with the provisions of Paragraph HC-3.4.3 (compliance officer).
            HC-1.2.3 and 1.2.6 01/2007 Clarified rules for Board composition for Bahraini insurance licensees, other than insurance firms.
            HC-1.2.15 07/2008 Clarified board composition.
            HC-1.2.16 07/2008 Added a new Paragraph dealing with limits on number of directorships held.
            HC-3.1.2A 04/2010 Added requirements for Managing Director.
            HC-3.4.4 04/2010 Clarified that the compliance function may not be combined with the internal audit function or any operational function as they are incompatible and may create a conflict of interest.

          • HC-A.2.3 [Deleted][versions up to January 2011]

            Deleted: January 2007

          • HC-A.2.4 [versions up to January 2011]

            Guidance on the implementation and transition to Volume 3 (Insurance) is given in Module ES (Executive Summary).

      • HC-B Scope of Application[versions up to January 2011]

        • HC-B.1 Insurance Licensees[versions up to January 2011]

          • HC-B.1.1 [versions up to January 2011]

            The contents of this Module — unless otherwise stated — apply to all Bahraini insurance licenseesG , except those operating as a Bahraini single person company or unincorporated entity.

          • HC-B.1.2 [versions up to January 2011]

            Overseas insurance licenseesG must satisfy the CBB that equivalent arrangements are in place at the parentG entity level, and that these arrangements provide for effective high-level controls over activities conducted under the Bahrain license. Overseas insurance licenseesG must also comply with the specific requirement contained in Paragraph HC-3.1.3 and HC-3.4.3.

            Amended: January 2007

          • HC-B.1.3 [versions up to January 2011]

            In assessing compliance with Paragraph HC-B.1.2, the CBB will take into account regulatory requirements applicable to the parentG entity, as well as the governance and systems and controls arrangements actually implemented by the parentG entity and applied to the Bahrain operation. With the exception of specific requirements that explicitly apply to overseas insurance licenseesG (i.e. Paragraphs HC-B.1.2 and HC-3.1.3), overseas insurance licenseesG should consider the remaining contents of this Chapter as guidance, in judging whether high-level controls applied to the branch satisfy HC-B.1.2.

            Amended: January 2007

        • HC-B.2 Branches, Subsidiaries and Affiliates[versions up to January 2011]

          • HC-B.2.1 [versions up to January 2011]

            Bahraini insurance licenseesG must ensure that, as a minimum, the same or equivalent provisions of this Module apply to their branchesG , whether located inside or outside the Kingdom of Bahrain, such that these are also subject to effective high-level controls. In instances where local jurisdictional requirements are more stringent than those applicable in this Module, the local requirements are to be applied.

          • HC-B.2.2 [versions up to January 2011]

            Bahraini insurance licenseesG must satisfy the CBB that financial services activities conducted in subsidiariesG and other group members are subject to the same or equivalent arrangements for ensuring effective high-level controls over their activities.

            Amended: January 2007

          • HC-B.2.3 [versions up to January 2011]

            Where an insurance licenseeG is unable to satisfy the CBB that its subsidiariesG and other group members are subject to the same or equivalent arrangements, the CBB will assess the potential impact of risks — both financial and reputational — to the licensee arising from inadequate high-level controls in the rest of the group of which it is a member. In such instances, the CBB may impose restrictions on dealings between the licensee and other group members. Where weaknesses in controls are assessed by the CBB to pose a major threat to the stability of the licensee, then its authorisation may be called into question.

            Amended: January 2007

      • HC-1 The Board[versions up to January 2011]

        • HC-1.1 Functions and Responsibilities[versions up to January 2011]

          • General Requirement[versions up to January 2011]

            • HC-1.1.1 [versions up to January 2011]

              With the exception of unincorporated entities and single person companies, all Bahraini insurance licenseesG must have a Board of DirectorsG ('the Board'). The Board is ultimately accountable and responsible for the management and performance of the licensee.

            • HC-1.1.2 [versions up to January 2011]

              To discharge its responsibility effectively, a Board typically delegates various functions and tasks, for instance to Board sub-committees, management and other employees. When it delegates, the Board nonetheless retains ultimate responsibility for the performance of those functions and tasks.

            • HC-1.1.3 [versions up to January 2011]

              Insurance brokersG who were licensed prior to the introduction of Volume 3 (Insurance), and who were unincorporated entities or natural persons at that time, may continue as such until 31 December 2006 (refer to ES-2.2.1). Under Volume 3, insurance brokersG and insurance consultantsG may be licensed as a single person company or (in the latter case only) a sole proprietorship: see Section AU-2.1.

              Amended: January 2007

          • Specific Requirements[versions up to January 2011]

            • HC-1.1.4 [versions up to January 2011]

              The Board must establish and maintain a statement of its responsibilities, defining its functions and tasks and those delegated to Board sub-committees and senior management. This statement must be clearly communicated to Board members and senior management.

            • HC-1.1.5 [versions up to January 2011]

              The Board must approve and review at least annually the licensee's:

              (a) Strategic plans;
              (b) Management structure and responsibilities; and
              (c) Systems and controls framework (including its policies and procedures).
              Amended: January 2007

            • HC-1.1.6 [versions up to January 2011]

              The Board must also regularly review:

              (a) The licensee's implementation of its strategy and operational performance;
              (b) The performance of its executive management; and
              (c) The level of risk.
              Amended: January 2007

            • HC-1.1.7 [versions up to January 2011]

              The Board must set out clearly and review on a regular basis who has authority to enter the licensee into contractual obligations. The Board should set a materiality threshold so that contractual obligations above this set threshold are regularly reported to the Board. In setting the materiality threshold, the Board will consider the financial impact the contractual obligations may have in relation to its capital.

            • HC-1.1.8 [versions up to January 2011]

              The Board must have effective policies and processes in place to address its members' potential conflicts of interest, including matters such as:

              (a) Related party transactionsG ;
              (b) The misuse of assets belonging to the licensee; and
              (c) The use of privileged information for personal advantage ('insider trading').
              Amended: January 2007

            • HC-1.1.9 [versions up to January 2011]

              Board members must declare in writing all of their interests in other enterprises or activities (whether as a shareholderG , manager, or other form of participation) to the Board (or the Nominations or Audit Committee) on an annual basis. Any Board member should also absent himself from any discussion or decision-making that involves a subject where he is incapable of providing objective advice, or which involves a subject, transaction or proposed transaction where there is a potential conflict of interest.

            • HC-1.1.10 [versions up to January 2011]

              The Board and its members must act with honesty, integrity, due skill and care, and in the best interests of the licensee, its shareholdersG and policyholdersG .

            • HC-1.1.11 [versions up to January 2011]

              In assessing compliance with Paragraph HC-1.1.10, the CBB will take into account all actions of the Board and its members. The interest of the licensee includes the licensee's continued compliance with all relevant Rules and Regulations, and the interests of employeesG , customersG and other stakeholdersG . The interest of shareholdersG includes the current and future value of the licensee, its status as a going concern, transparency and disclosure of information to the market. The interest of policyholdersG includes ensuring that the licensee fulfils its obligations under its policiesG and treats all policyholdersG fairly and pays equal regard to the interests of all policyholdersG and groups of policyholdersG .

              Amended: January 2007
              Amended: October 2007

          • Additional Guidance[versions up to January 2011]

            • HC-1.1.12 [versions up to January 2011]

              In assessing the licensee's strategic plans (Paragraph HC-1.1.5), the CBB would expect the Board to address the licensee's current and future aspirations with respect to its position in the market place, its size, products, value and other key aspirations that would be considered important by investors. Furthermore, the Board should demonstrate that it is able to proactively identify and understand the significant risks that the licensee faces in achieving its business objectives. A description of the licensee's strategy should be included in the annual financial statements. See also Module PD (Public Disclosure).

              Amended: January 2007

            • HC-1.1.13 [versions up to January 2011]

              In assessing the management framework (Paragraph HC-1.1.5), the CBB would expect the Board to have effective policies and processes in place for:

              (a) Ensuring a formal and transparent Board nomination process;
              (b) Appointing senior managers, and ensuring that they have the necessary integrity, technical and managerial competence, and experience;
              (c) Overseeing succession planning, and minimizing undue reliance on key individuals;
              (d) Reviewing key senior management and Board remuneration packages and ensuring such packages are consistent with the corporate values and strategy of the licensee and encourage prudent risk taking;
              (e) Monitoring and evaluating management's performance in implementing agreed strategy and business plans, and ensuring appropriate resources are available; and
              (f) Approving budgets and reviewing performance against those budgets.
              Amended: January 2007

            • HC-1.1.14 [versions up to January 2011]

              In assessing the systems and controls framework (Paragraph HC-1.1.5), the CBB would expect the Board to be able to demonstrate that its operations, individually and collectively:

              (a) Are measured, monitored and controlled by appropriate, effective and prudent risk management systems commensurate with the scope of the licensee's activities. These should pro-actively identify as well as monitor risk. The systems should produce information on a timely basis, and in a form and quality appropriate to the needs of the different recipients;
              (b) Are supported by an appropriate control environment. The risk management and financial reporting functions must be independent of business lines and must be run by individuals not involved with the day-to-day running of the various business areas; and
              (c) Make effective use of the work of internal and external auditorsG . The internal audit function should be independent of the senior management, reporting to the Audit committee. The Audit Committee should ensure that the external auditor firm and its partners are truly independent of the licensee and have no financial or other relationship with the licensee. Audit findings should be used as an independent check on the information received from management about the licensee's operations and performance and the effectiveness of internal controls.
              Amended: January 2007

        • HC-1.2 Composition[versions up to January 2011]

          • HC-1.2.1 [versions up to January 2011]

            Captive insurance firmsG are exempt from the requirements of this section, except for Paragraphs HC-1.2.2 and HC-1.2.13, which apply to all Bahraini insurance licenseesG (except for unincorporated entities and single person companies).

            Amended: January 2007

          • HC-1.2.2 [versions up to January 2011]

            The Memorandum and Articles of Association of licensees must adequately set out procedures for the appointment, removal and retirement of DirectorsG .

          • HC-1.2.3 [versions up to January 2011]

            For insurance firmsG , the Board must comprise at least five DirectorsG . For Bahraini insurance licenseesG , other than insurance firmsG , the Board must comprise at least three DirectorsG . For all Bahraini insurance licenseesG , at least half the Board's members, including the Board's chairman, must be non-executive DirectorsG .

            Amended: January 2007
            Amended: October 2007

          • HC-1.2.4 [versions up to January 2011]

            A non-executive DirectorG is a DirectorG who is not involved in the day-to-day management of the licensee and is not an employeeG of the licensee. The Chairman of the Board cannot, therefore, also perform the role of Chief ExecutiveG .

            Amended: January 2007
            Amended: October 2007

          • HC-1.2.5 [versions up to January 2011]

            For licensees that do not meet the requirements of Paragraph HC-1.2.4, the CBB may grant, upon application by the licensee, a transition period allowing the licensee to maintain the current structure for a limited period (Refer to ES-2.2.2).

            Amended: January 2007

          • HC-1.2.6 [versions up to January 2011]

            The CBB requires Boards of insurance firmsG to include at least two independent non-executive members. For Bahraini insurance licenseesG , other than insurance firmsG , Boards must include at least one independent non-executive member.

            Amended: January 2007

          • HC-1.2.7 [versions up to January 2011]

            The Board's non-executive DirectorsG must comprise a sufficient number of independent DirectorsG to apply independent judgement to, amongst other things, tasks where there is a potential for conflict of interest or there is a need for impartiality.

            Amended: January 2007
            Amended: October 2007

          • HC-1.2.8 [versions up to January 2011]

            In the case of a Bahraini insurance licenseeG , which is part of an overseas group, where there is sufficient independent scrutiny of the operations of the firm on a group wide basis, the CBB will consider exempting the licensee from the requirements of Paragraph HC-1.2.6.

            Amended: January 2007

          • HC-1.2.9 [versions up to January 2011]

            The Board must outline in its annual report its criteria and materiality thresholds for the definition of 'independence'. The DirectorsG must be identified in the annual report as executiveG , non-executiveG , or independent non-executiveG .

          • HC-1.2.10 [versions up to January 2011]

            In assessing independence, the CBB will take into account whether the person concerned is (or has been):

            (a) A controllerG or representative of the controllerG of the licensee (see Chapter GR-5 for the definition of controllerG );
            (b) A business partner or first-degree relative of an employeeG or of a Board member of the licensee concerned, or of a member of the group of which the licensee is a member;
            (c) A professional adviser to the licensee or the group of which it is a member; and
            (d) Free of any significant contractual or business relationship with the licensee, or of any of the members of a group of which it is a member.
            Amended: January 2007

          • HC-1.2.11 [versions up to January 2011]

            In assessing the number of independent non-executive DirectorsG , the CBB will seek to ensure that independent judgement is applied to matters such as Board remuneration and audit issues.

            Amended: January 2007

          • HC-1.2.12 [versions up to January 2011]

            The appointment of Board members is conditional on the approval of the CBB. (See Section AU-1.2).

            Amended: January 2007

          • HC-1.2.13 [versions up to January 2011]

            The Board must ensure that collectively it has sufficient expertise to understand the important issues relating to the operation and control of its company.

          • HC-1.2.14 [versions up to January 2011]

            It is not expected that every Board member is proficient in all areas, but collectively the Board is expected to have the required expertise. There should also be agreed-upon procedures by the Board for DirectorsG to take independent advice if necessary at the licensee's expense. The CBB also expects Board members to undertake relevant training on a regular basis to help them fulfill their responsibilities as DirectorsG .

            Amended: January 2007

          • HC-1.2.15 [versions up to January 2011]

            The Board must periodically assess its composition and size and, where appropriate, reconstitute itself and its committees by selecting new DirectorsG to replace long-standing members or those whose contributions to the licensee or its committees is not adequate.

            Amended: July 2008

          • HC-1.2.16 [versions up to January 2011]

            A Board member may have a maximum of two Directorships of financial institutions inside Bahrain. However, two Directorships of licensees within the same category of licensees would not be permitted. Insurance firmsG may approach the Central Bank for exemption from this limit where the Directorships concern financial institutions within the same group.

            Added: July 2008

        • HC-1.3 Meetings and Attendance[versions up to January 2011]

          • HC-1.3.1 [versions up to January 2011]

            The Board must meet sufficiently often to enable it to discharge its responsibilities effectively, taking into account the insurance licensee'sG scale and complexity.

          • HC-1.3.2 [versions up to January 2011]

            The CBB expects that the scale and complexity of most licensees will require meetings to be held at least quarterly (as required by the Companies Law 2001). For the largest, most complex licensees, more frequent Board meetings may be more appropriate.

            Amended: January 2007

          • HC-1.3.3 [versions up to January 2011]

            Board members must attend at least three-quarters of all Board meetings held during any twelve-month period in person. Board rules must require members to step down if they are not actively participating in Board meetings.

          • HC-1.3.4 [versions up to January 2011]

            The CBB expects Board members who fail to attend at least three-quarters of all Board meetings in any twelve-month period to step down, unless the Board is able to satisfy the CBB that there are valid reasons for the DirectorG concerned to remain a Board member.

            Amended: January 2007

          • HC-1.3.5 [versions up to January 2011]

            At least half the Board meetings of Bahraini insurance licenseesG in any twelve-month period must be held in the Kingdom of Bahrain.

          • HC-1.3.6 [versions up to January 2011]

            The Board must be supplied in a timely manner with information in a form and of a quality appropriate to enable it to discharge its duties. The Board must also maintain adequate records of its meetings, such that key decisions and how they are arrived at can be traced.

      • HC-2 Committees[versions up to January 2011]

        • HC-2.1 Board Committees[versions up to January 2011]

          • HC-2.1.1 [versions up to January 2011]

            Bahraini insurance licenseesG must establish Board Committees appropriate to the scale and complexity of their operations.

          • HC-2.1.2 [versions up to January 2011]

            Board Committees can enhance the effectiveness of Boards, both in their management of a licensee's risks, and in addressing potential conflicts of interest. In particular, three key areas where there is a need for checks and balances within the Board include: (a) the nomination of DirectorsG ; (b) the remuneration of DirectorsG ; and (c) the audit of the licensee's financial performance. These areas are typically addressed by, respectively, the Nominations Committee, the Remuneration Committee and the Audit Committee. Where a licensee's Board does not consider it necessary to create Board Committees, it must be prepared to give reasons for its decision to the CBB.

            Amended: January 2007

          • HC-2.1.3 [versions up to January 2011]

            The CBB expects licensees, as a minimum, to establish an Audit Committee. The CBB would expect larger licensees to establish other committees as well. Where a licensee's Board does not consider it necessary to create Board committees, it must be prepared to give reasons for its decision to the CBB.

            Amended: January 2007

          • HC-2.1.4 [versions up to January 2011]

            The CBB would expect to see committees dealing with the issues listed in (a) to (c) in Paragraph HC-2.1.2 to be chaired by an independent non-executive DirectorG and for the majority of its members to be independent non-executive DirectorsG .

            Amended: January 2007

          • HC-2.1.5 [versions up to January 2011]

            Where an insurance licenseeG has been granted an exemption under Paragraph HC-1.2.8, upon application, an exemption may also be granted from Paragraph HC-2.1.1.

            Amended: January 2007

          • HC-2.1.6 [versions up to January 2011]

            Board Committees must have:

            (a) Written terms of reference, which are reviewed annually;
            (b) Adequate records of their meetings, such that key decisions and how they are arrived at can be traced; and
            (c) Appropriate membership, which addresses potential conflicts of interest.
            Amended: January 2007

        • HC-2.2 Executive Management Committee[versions up to January 2011]

          • HC-2.2.1 [versions up to January 2011]

            Bahraini insurance firmsG (other than captive insurance firmsG ) must consider the need to establish an Executive Management Committee to support the Chief Executive OfficerG /General ManagerG .

            Amended: January 2007

          • HC-2.2.2 [versions up to January 2011]

            Insurance intermediariesG and insurance managersG , unlike other insurance licenseesG , are not required to consider the need to operate an Executive Management Committee.

          • HC-2.2.3 [versions up to January 2011]

            Executive Management Committees can facilitate proper corporate governance by ensuring that senior management discuss key issues affecting the licensee openly and collectively. Where an insurance firmG does not consider it necessary to create an Executive Management Committee, it must be prepared to give reasons for its decision to the CBB, and to explain what checks and balances will apply to executive management.

            Amended: January 2007

          • HC-2.2.4 [versions up to January 2011]

            The Committee should comprise the Chief Executive OfficerG /General ManagerG and appropriate heads of functionsG , such as the head of risk management, the Chief Finance Officer, the Chief Operations Officer, the head of underwriting and other key business divisions.

            Amended: January 2007

          • HC-2.2.5 [versions up to January 2011]

            The Committee's responsibilities should include the oversight of day-to-day implementation of strategy, limits and procedures. It should also monitor the day-to-day performance of individual business lines and departments relative to targets, limits, and policies (in conjunction with other committees and functions, such as the Risk Committee or the Risk Management or Compliance functions).

          • HC-2.2.6 [versions up to January 2011]

            The Board is responsible for ensuring that there is a clear framework of delegated authorities and a clear demarcation of duties between the Board, the Executive Committee, the Chief Executive OfficerG and other members of senior management.

            Amended: January 2007

        • HC-2.3 Shari'a Supervisory Board[versions up to January 2011]

          • HC-2.3.1 [versions up to January 2011]

            An insurance firmG licensed to conduct insurance business according to takaful principles must establish a Shari'a Supervisory BoardG . The firm must also comply with AAOIFI Governance Standard for Islamic Financial Institutions No. 1 ('Shari'a Supervisory Board: Appointment, Composition and Report').

            Amended: January 2007

          • HC-2.3.2 [versions up to January 2011]

            The function of the Shari'a Supervisory BoardG is to review the operations of the takaful company and ensure that these are compliant with the principles of the Shari'a. In doing so, the Shari'a Supervisory BoardG is likely to provide guidance and advice to the takaful company's Board and management on all aspects of a takaful operation, with a particular focus on product design, the handling of claims and surpluses, the calculation and allocation of the operator's costs, the approval of investments and accounting issues.

            Amended: January 2007

          • HC-2.3.3 [versions up to January 2011]

            In the case of overseas insurance firmsG operating according to takaful principles, the requirement to appoint a Shari'a Supervisory Board in Paragraph HC-2.3.1 may be waived by CBB, if the firm has appointed an equivalent Shari'a Supervisory BoardG at the parent entity level, of sufficient expertise and credibility.

            Amended: January 2007

          • HC-2.3.4 [versions up to January 2011]

            An insurance firmG licensed to conduct insurance business according to takaful principles must comply with all other AAOIFI governance standards for Islamic Financial Institutions.

          • HC-2.3.5 [versions up to January 2011]

            For takaful firmsG , full compliance with AAOIFI Governance Standard No.1 is required. The CBB would actively encourage full compliance with all the AAOIFI governance standards but in so doing accepts that these standards themselves include not only standards but also guidance.

            Amended: January 2007

          • HC-2.3.6 [versions up to January 2011]

            The office of Shari'a Board Member is a controlled functionG : see Module AU (Authorisation).

            Amended: January 2007
            Amended: October 2007

          • HC-2.3.7 [versions up to January 2011]

            The Shari'a Board requirements contained in Section HC-2.3 are additional to the other high-level control requirements contained in this Module.

      • HC-3 Other High-Level Controls[versions up to January 2011]

        • HC-3.1 Chief Executive Officer / General Manager[versions up to January 2011]

          • HC-3.1.1 [versions up to January 2011]

            Insurance licenseesG must appoint a person to undertake the function of Chief Executive OfficerG , unless they fall into the categories specified in Paragraph HC-3.1.3,

            Amended: July 2007

          • HC-3.1.2 [versions up to January 2011]

            The Chief Executive OfficerG is responsible for the executive management and performance of the licensee, within the framework of delegated authorities set by the Board. The function of Chief Executive OfficerG is a controlled functionG , and the person nominated to that post therefore requires prior CBB approval (see Module AU (Authorisation)).

            Amended: July 2007

          • HC-3.1.2A [versions up to January 2011]

            The Chairman of the Board may not act as the Chief ExecutiveG or General ManagerG . However, in the case of appointing a DirectorG on the Board as the Managing DirectorG of the insurance licenseeG , such person:

            (a) Should be fully responsible for the executive management and performance of the insurance licenseeG , within the framework of delegated authorities set by the Board;
            (b) Must devote full-time working hours to the insurance licenseeG ; and
            (c) Must not be employed at any other firm.
            Added: April 2010

          • HC-3.1.3 [versions up to January 2011]

            Unincorporated entities, single person companies and overseas insurance licenseesG must appoint a person to undertake the function of General ManagerG .

          • HC-3.1.4 [versions up to January 2011]

            In the case of unincorporated entities and single person companies, the General ManagerG is the person directing the affairs of the licensee. In the case of overseas insurance licenseesG , the General ManagerG is the most senior manager resident in Bahrain, accountable to the CBB for the operations of the Bahrain branch and its compliance with CBB Regulations and Directives. The function of General ManagerG is a controlled functionG , and the person nominated to that post requires prior CBB approval (see Module AU).

            Amended: January 2007

          • HC-3.1.5 [versions up to January 2011]

            Residency requirements apply to Chief Executive OfficersG and General ManagersG : see Section AU-2.2.

            Amended: January 2007

        • HC-3.2 Mapping of Risks and Responsibilities[versions up to January 2011]

          • HC-3.2.1 [versions up to January 2011]

            The requirements in this section do not apply to captive insurance firmsG but should be considered as guidance.

            Amended: January 2007

          • HC-3.2.2 [versions up to January 2011]

            In conjunction with the Board, the Chief Executive OfficerG /General ManagerG must maintain a clear mapping of the risks faced by the business and document the organisational and other controls maintained to meet those risks.

            Amended: January 2007

          • HC-3.2.3 [versions up to January 2011]

            In conjunction with the Board, the Chief Executive OfficerG /General ManagerG must maintain a clear and appropriate apportionment of significant responsibilities amongst senior management.

            Amended: January 2007

          • HC-3.2.4 [versions up to January 2011]

            The apportionment must be clear as to who has which responsibility, and must permit the business and affairs of the licensee to be adequately monitored and controlled by the Board, the Chief Executive OfficerG /General ManagerG , and relevant heads of functionG .

            Amended: January 2007

          • HC-3.2.5 [versions up to January 2011]

            The apportionment must also ensure appropriate segregation of duties where these are required for effective controls.

        • HC-3.3 Internal Audit[versions up to January 2011]

          • HC-3.3.1 [versions up to January 2011]

            Bahraini insurance licenseesG (except for unincorporated entities and single person companies) must establish an internal audit function to monitor the adequacy of their systems and controls.

          • HC-3.3.2 [versions up to January 2011]

            The CBB considers it best practice for captive insurersG to fall within the remit of the internal audit functions of their groups and be subject to periodic review, although no formal arrangements for internal audit cover captive insurersG .

            Amended: January 2007

          • HC-3.3.3 [versions up to January 2011]

            Part or all of the internal audit function may be outsourcedG , or provided at group level, subject to the requirements of Section RM-7.6. Amongst other things, these require licensees to retain responsibility for their internal audit programme, and that appropriate safeguards are built into the outsourcing contract. Furthermore, a licensee cannot outsourceG its internal audit function to its external auditorsG (with limited exceptions). Prior approval from the CBB is required for significant outsourcingG arrangements, including all outsourcingG of internal audit. A licensee's head of internal audit is a controlled functionG and requires CBB approval prior to being appointed (see Section AU-1.2).

            Amended: January 2007

          • HC-3.3.4 [versions up to January 2011]

            Internal audit functions must have terms of reference that clearly indicate:

            (a) The scope and frequency of audits;
            (b) Reporting lines; and
            (c) The review and approval process applied to audits.
            Amended: January 2007

          • HC-3.3.5 [versions up to January 2011]

            Paragraph HC-3.3.4 applies irrespective of whether the internal audit function is outsourced. Where it is outsourcedG , the CBB would expect to see these matters addressed in the contract with the outsourcing providerG .

            Amended: January 2007

          • HC-3.3.6 [versions up to January 2011]

            Internal audit functions must report directly to the Audit committee or, where none exists, to the Board. They must have unrestricted access to all the appropriate records of the insurance licenseeG . They must have open and regular access to the Audit Committee, the Board, the Chief ExecutiveG , and the licensee's external auditorsG .

            Amended: January 2007

          • HC-3.3.7 [versions up to January 2011]

            Internal audit functions must have adequate staff levels with appropriate skills and knowledge, such that they can act as an effective challenge to the business. Where the function is not outsourced, the head of the functionG should be a senior and experienced employeeG . Internal audit functions must not perform other activities that compromise their independence.

            Amended: January 2007

          • HC-3.3.8 [versions up to January 2011]

            The CBB would expect to see in place a formal audit plan that:

            (a) Is reviewed and approved at least annually by the Audit Committee or, where none exists, the Board;
            (b) Is risk-based, with an appropriate scoring system; and
            (c) Covers all material areas of a licensee's operations over a reasonable timescale, including (where relevant) the process by which a licensee obtains professional actuarial expertise to develop and verify its pricing and reserving policies.
            Amended: January 2007

          • HC-3.3.9 [versions up to January 2011]

            Internal Audit reports should also be:

            (a) Clear and prioritised, with action points directed towards identified individuals;
            (b) Timely; and
            (c) Distributed to the Audit Committee or Board and appropriate senior management.
            Amended: January 2007

          • HC-3.3.10 [versions up to January 2011]

            Insurance licenseesG should also have processes in place to deal with recommendations raised by internal audit to ensure that they are:

            (a) Dealt with in a timely fashion;
            (b) Monitored until they are settled; and
            (c) Raised with senior management if they have not been adequately dealt with.
            Amended: January 2007

        • HC-3.4 Compliance[versions up to January 2011]

          • HC-3.4.1 [versions up to January 2011]

            Insurance licenseesG must take reasonable care to establish and maintain effective systems and controls for compliance with applicable requirements in the Kingdom's legislation and those set by the CBB, and those established under any other statute or regulator to which the insurance licenseeG is subject.

            Amended: January 2007

          • HC-3.4.2 [versions up to January 2011]

            Depending on the nature, scale and complexity of its business, an insurance licenseeG should consider having a separate compliance function. A compliance function should:

            (a) Document its organisation and responsibilities;
            (b) Be appropriately staffed with competent individuals;
            (c) Have unrestricted access to the licensee's relevant records; and
            (d) Have ultimate recourse to the Board.
            Amended: January 2007

          • HC-3.4.3 [versions up to January 2011]

            All insurance licenseesG must designate an employeeG , of appropriate standing and resident in Bahrain, as Compliance Officer. The duties of the Compliance Officer include:

            (a) Having responsibility for oversight of the licensee's compliance with the requirements of the CBB; and
            (b) Reporting to the licensee's Board in respect of that responsibility.
            Amended: January 2007

          • HC-3.4.4 [versions up to January 2011]

            The Compliance Officer is a controlled functionG and the requirements relating to approved personsG must be met (see Chapter AU-1.2). If the scale and nature of the licensee's operations are limited, then the individual who performs the function of Compliance Officer may also take on other responsibilities, providing this does not create a potential conflict of interest. The compliance function may not be combined with the internal audit function or any operational function as they are incompatible and may create a conflict of interest.

            Amended: April 2010

          • HC-3.4.5 [versions up to January 2011]

            In the case of a captive insurance firmG , where the captive insurerG is managed by an insurance managerG , the insurance managerG must designate a Compliance Officer for the managed firms. A self-managed captive insurerG must also appoint a Compliance Officer, although this role may be combined with other functions.

            Amended: January 2007

        • HC-3.5 Remuneration Policies[versions up to January 2011]

          • HC-3.5.1 [versions up to January 2011]

            An insurance licensee'sG remuneration policies (including incentives, bonuses and other rewards), must not encourage short-term or reckless behaviour.

          • HC-3.5.2 [versions up to January 2011]

            Levels of remuneration should be sufficient to attract, retain and motivate DirectorsG and employeesG of the quality required to run the licensee successfully, but a licensee should avoid paying more than is necessary for this purpose. Where remuneration is structured so as to link rewards to corporate and individual performance, criteria should avoid excessive focus on short-term profitability measures.

          • HC-3.5.3 [versions up to January 2011]

            The review of Directors'G remuneration must be a standing item on the insurance licensee'sG Annual General Meeting agenda, and must be considered by shareholdersG at every Annual General Meeting. Policies in respect of Directors'G remuneration (including pension and severance arrangements) and bonuses must be clearly disclosed in the annual financial statements.

            Amended: January 2007

          • HC-3.5.4 [versions up to January 2011]

            Directors'G remuneration must comply with all applicable laws and Regulations, including the provisions contained in Legislative Decree No. 21 of 2001, with respect to promulgating the Commercial Companies Law, capping Directors'G remuneration as a percentage of net profits.

            Amended: January 2007

        • HC-3.6 Corporate Ethics[versions up to January 2011]

          • HC-3.6.1 [versions up to January 2011]

            The requirements in this Section do not apply to captive insurance firmsG , unincorporated entities and single person companies, but should be considered as guidance.

            Amended: January 2007

          • HC-3.6.2 [versions up to January 2011]

            An insurance licensee'sG Board must establish and disseminate to all employeesG and appointed representativesG of the licensee a corporate code of conduct.

          • HC-3.6.3 [versions up to January 2011]

            The code of conduct must establish standards by giving examples or expectations of:

            (a) Honesty;
            (b) Integrity;
            (c) Leadership;
            (d) Reliability; and
            (e) Professionalism.
            Amended: January 2007

          • HC-3.6.4 [versions up to January 2011]

            The Board must establish and disseminate to employeesG and appointed representativesG policies and processes for the identification, reporting and prevention or management of potential conflicts of interest, including matters such as:

            (a) Related party transactionsG ;
            (b) The misuse of the licensee's assets; and
            (c) The use of privileged information for personal advantage ('insider trading').
            Amended: January 2007

          • HC-3.6.5 [versions up to January 2011]

            Any transaction in which Board members or any member of management have potential conflicts of interest should either be proscribed or require formal documented approval by the Board, with measures taken to manage those conflicts. (See also Paragraph HC-1.1.8)

            Amended: January 2007

          • HC-3.6.6 [versions up to January 2011]

            The Board must ensure that policies and procedures are in place to ensure that necessary customerG confidentiality is maintained.

            Amended: January 2007

        • HC-3.7 Transparency and Disclosure[versions up to January 2011]

          • HC-3.7.1 [versions up to January 2011]

            The requirements in this Section do not apply to captive insurance firmsG , but should be considered as guidance. Unincorporated entities and single person companies are exempt from these requirements.

            Amended: January 2007

          • HC-3.7.2 [versions up to January 2011]

            The Board must oversee the process of disclosure to all stakeholdersG . The Board must ensure that the licensee's communications are fair, transparent, comprehensive and timely.

          • HC-3.7.3 [versions up to January 2011]

            Disclosure policies must be reviewed for compliance with the CBB's disclosure requirements.

            Amended: January 2007

          • HC-3.7.4 [versions up to January 2011]

            Licensees should refer to Module PD (Public Disclosure) regarding the specific disclosures required.

      • HC-4 Annual Certification[versions up to January 2011]

        • HC-4.1 Annual Board Review and Certification[versions up to January 2011]

          • HC-4.1.1 [versions up to January 2011]

            The Board must assess and document each year whether the internal corporate governance processes that it has implemented have successfully achieved their objectives, and consequently whether the Board has fulfilled its responsibilities for directing and monitoring the overall conduct of the licensee's affairs.

          • HC-4.1.2 [versions up to January 2011]

            The requirements in Chapter HC-4 do not apply to captive insurance firmsG , but should be considered as guidance. Unincorporated entities and single person companies are exempt from these requirements.

            Amended: January 2007

          • HC-4.1.3 [versions up to January 2011]

            The results of the review referred to in Paragraph HC-4.1.1 must be summarised in a written certification, to be signed by all Board members, and sent to the CBB within 3 months of the financial year-end of the licensee. The Board must report any material deficiencies identified during the review, along with an action plan and timescales for their correction.

            Amended: January 2007

          • HC-4.1.4 [versions up to January 2011]

            The Board certification comprises a prescribed standard statement, to be signed by all Board members, attached to which should be a summary of the steps the Board has taken in carrying out the review; a summary of the results of that review, and a summary action plan (with timescales) for addressing any identified material deficiencies. The prescribed standard statement is included in Part B of Volume 3 (Insurance), under 'CBB Reporting Forms': see 'DirectorsG ' High-Level Controls Certification' contained in the Insurance Firm Return (Form IFR) and the Insurance Intermediaries and Managers Return (Form IMR).

            Amended: January 2007

        • HC-4.2 Scope of the Review[versions up to January 2011]

          • HC-4.2.1 [versions up to January 2011]

            The Board's review should cover the following specific matters:

            (a) That the Board has reassessed the licensee's objectives and plans, and has reviewed the licensee's corporate strategy document;
            (b) That the Board has reassessed the licensee's overall risk profile, and its mapping of risks and the control environment put in place to meet those risks (see Section HC-3.2). The Board must comment whether the control environment remains effective and appropriate;
            (c) That the Board has assessed the licensee's internal controls, to confirm that these are based on established policies and procedures approved by the Board and provide reasonable assurance of the integrity and reliability of its financial records;
            (d) That the Board has assessed whether adherence to established internal limits and controls was continuously monitored;
            (e) That the Board has assessed that all new (or material changes to) significant policies, procedures and products introduced by the licensee since the last Board certification were appropriately reviewed and approved at the time;
            (f) That the Board has assessed that management and staff have complied with the licensee's corporate code of conduct (see Section HC-3.6); and
            (g) That in the period under review, the Board had received and reviewed the external auditor's management letter within six months of the (previous) financial year end, together with the licensee's audit committee and senior management comments on the letter and any proposed actions.
            Amended: January 2007

          • HC-4.2.2 [versions up to January 2011]

            With respect to HC-4.2.1 (g), a Director'sG certificate received (for example) no later than 31 March 2004, covering the year ending 31 December 2003, would need to certify that the management letter for the year ending 31 December 2002 was received and reviewed by the Board by 30 June 2003.

    • DP Dispute Procedures [versions up to 30 September 2012]

      [This module in Volume 3 has been intentionally left blank: requirements relating to Dispute Procedures will be developed later]

      Amended: January 2007
      Amended: October 2007

    • GR General Requirements

      • GR-5.3 Suitability of Controllers

        • GR-5.3.3 [Replaced 1 October 2015]

          Natural persons who intend to take a stake of 20% or more in a Bahraini insurance licenseeG are subject to enhanced scrutiny, given the CBB's position as home supervisorG of such licensees. The level of scrutiny and of expected compliance with the above standards become more onerous as the level of proposed ownership increases. Natural persons will not normally be approved to take majority control (i.e. a stake of 50% or more of either the capital or voting rights) of a Bahraini insurance licenseeG .

          Amended: October 2011
          Amended: July 2007
          Amended: October 2007

        • GR-5.3.5 [Replaced 1 October 2015]

          Legal persons who intend to take a stake of 20% or more in a Bahraini insurance licenseeG are subject to enhanced scrutiny, given the CBB's position as home supervisorG of such licensees. The level of scrutiny and of expected compliance with the above standards becomes more onerous as the level of proposed ownership increases. In particular, unregulated legal persons will not normally be approved to take majority control (i.e. a stake of 50% or more of either the capital or voting rights of a Bahraini insurance licenseeG , unless the proposed parent is a well-established business (that satisfies the above conditions), and its ownership would not pose undue conflicts of interest. Regulated legal persons will normally only be approved to take majority control where — in addition to the above conditions — the resulting group would be subject to effective consolidated supervision in accordance with relevant international standards; and the home supervisorG of the parent entity has agreed to the proposed acquisition, as well as to the sharing of relevant prudential information for supervisory purposes (expressed, if necessary, through the signing of a Memorandum of Understanding between the CBB and the home supervisorG , setting out their respective supervisory responsibilities).

          Amended: October 2011
          Adopted: July 2007

        • GR-5.3.6 [Replaced 1 October 2015]

          The CBB may contact references and supervisory bodies in connection with any information provided to support an application for controllerG . The CBB may also ask for further information, in addition to that provided in the Form 2, if required to satisfy itself as to the suitability of the applicant.

          Adopted: July 2007

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