From: Captive Insurance Times
Corporate governance forms the foundation on which a captive is built, as said Sean O’Donnell, director of financial examination at the DC Department of Insurance, Securities and Banking (DISB), in a session at this year’s Captive Insurance Companies Association (CICA) International Conference.
O’Donnell added that, from a regulatory perspective, “everything flows from corporate governance. If there is good corporate governance in place, then the captive is likely to be successful in the long run”.
Although it was noted that corporate governance helps a captive through difficult times, rather than prevent them entirely, O’Donnell outlined the two main components of corporate governance frameworks. The first is literal, which refers to adherence to the corporate documents, bylaws and statutes of a domicile.
The second component, he continued, is the all-encompassing involvement and awareness of a captive’s management team in the operation of the captive to ensure it properly follows its business plan, as well as laws and regulations, in its processes.
Conversely, Joe Holahan, partner at Morris, Manning & Martin, highlighted that, from an attorney’s perspective, the two fundamental components of corporate governance are substantive and procedural.
Substantive refers to the directors’ and officers’ (D&O) fiduciary duties to the company, such as due care and loyalty, while procedural is designed to ensure a captive’s chain of authority is properly followed as ascribed by statutes and internal processes, and that decisions made on behalf of the captive ultimately derive from the owner.
Robert Donohoe, president and CEO of Lone Star Alliance Risk Retention Group (RRG), added that from the corporate side of running an RRG, implementation is a significant aspect of corporate governance.
Establishing a culture of accountability, transparency and discipline is crucial to ensure that processes in place allow the captive to follow its original guidelines and laws as a company, he noted.