RAK Insurance: A culture of governance and compliance

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Regina Doumit at RAK InsuranceBy Regina Doumit, Head of Legal and Compliance at RAK Insurance

 

 

As regulations get tougher and risks get more complex and interconnected, the success – and very survival – of any business will depend largely on how risk-aware, compliant and well-governed they are. RAK Insurance’s objective of good governance is to promote a strong, viable and a competitive corporation.

RAK Insurance’s board of directors is steward of the corporation’s assets and its behaviour is to focus on adding value to those assets by working with management to build a successful corporation and enhance shareholder value.  Our board has a major role in ensuring appropriate corporate governance and oversight of the company, its assets and activities.

Governments, regulators, investors, shareholders and stakeholders are increasingly pressing companies to strengthen their corporate governance practices and enhance their controls on financial reporting, internal control systems, risk-management systems, as well as internal and external audit functions. The company needs to disclose how it meets best practices in corporate governance and is seen as an indicator of the trustworthiness of its stewardship of shareholder assets. As a consequence, there is an increased scrutiny of board of directors and audit committee activities.

Adding value

The RAK Insurance board contributes to the company and adds value in a number of ways. These include assessing and approving the strategic direction of the company, ensuring that management has in place appropriate processes for risk assessment, management and internal control, monitoring performance against agreed benchmarks and assuring the integrity of financial reports. RAK Insurance board adds value by fulfilling their responsibilities in these areas; this will result in greater transparency and understanding of a company’s situation by its major stakeholders.

The board has oversight of the company but the day-to-day management is delegated to the chief executive and the senior management. RAK Insurance board relationship to management is critical to healthy governance. It is a relationship that continues to be maintained in a delicate balance. There is a common appreciation by management and the board of their respective roles, a mutual respect for each party in carrying them out, continuing open dialogue and communication and strong leadership within the board.

“The increased focus on corporate governance over the past decade has concentrated attention on audit committees and their role has expanded”

RAK Insurance stresses on the importance of board independence. The board has the capacity, independent of management, to fulfil these responsibilities and to engage in a constructive and mature relationship with management. The RAK Insurance board has a clear understanding of what they should do and what they should not do and the RAK Insurance culture is to provide opportunity for both directors and management to feel comfortable when management positions are challenged. We believe the following conditions can materially assist boards in developing such a culture: to have strong board members, independent of management, who are provided with appropriate orientation and who bring a diverse set of experiences, competences, skills and judgment to the board; and a CEO, who understands the role of the board and is openly supportive of building a healthy governance culture.

RAK Insurance Organisational Chart

It is six years since the Security and Commodity Authority (SCA) in the United Arab Emirates (UAE) introduced governance rules and a corporate discipline standard. The SCA requires that every listed company incorporated in the UAE must disclose on an annual basis a Statement of Corporate Governance Practices. This statement must be made in the company’s annual report or information circular and it must contain ‘a complete description of the company’s system of corporate governance with respect to each of the guidelines’.

The increased focus on corporate governance over the past decade has concentrated attention on audit committees and their role has expanded. In the UAE, the SCA rules and regulation require the board to establish an audit committee. The audit committee functions as specified in the law are to:

  • Oversee the company’s internal audit and internal control activities
  • Monitor the overall relationship with the external auditor and external audit activities
  • Review and report to the board the most critical accounting policies, which are the basis for financial reports

These rules and regulations have been adopted by RAK Insurance with some enhancements.  RAK Insurance’s audit committee is comprised of three board members; the majorities are non-executive board members. The CEO and the CFO will often attend audit committee meetings at the committee’s request.

At RAK Insurance the audit committee’s duties related to the control environment can be seen in the organisation chart below.

Financial supervision

  • Monitor the company’s financial position and the integrity of financial statements
  • Assess the appropriateness of accounting standards and policies
  • Monitor any formal announcements relating to the company’s financial performance, including the annual financial statements, the annual report, interim and other reports, disclosures and statements

Internal audit and controls

  • Evaluate the adequacy and appropriateness of internal control, internal audit and risk management
  • Review internal audit plans and reports
  • Safeguard the company’s assets by understanding the company’s risk environment and determine how to address those risks
  • Evaluate compliance with laws and regulations

Auditor selection and monitoring

  • Prepare the decision to appoint the external auditor
  • Maintain contacts with the external auditor and examine the auditor’s reports
  • Recommend the auditor to the board for shareholder approval
  • Appoint, re-appoint and remove the external auditor
  • Review and monitor the external auditor’s independence
  • Evaluate the non-audit services supplied by the external auditor
  • Develop and implement policy on engaging the external auditor to supply non-audit services
  • Maintain communications on such matters between the board, management, the independent auditors and the internal auditors

Compliance

  • Understand the ramifications of changes to the legal and regulatory framework on the company’s controls
  • Ensure compliance with internal policies and procedures
  • Monitor operation of the company’s whistleblower arrangement

Risk management

  • Ensure that all business risks are identified, evaluated and suitably managed
  • Approve the company’s risk appetite

Whistleblowing

RAK Insurance practices indicate that the board and the audit committee provide a secure, legal environment in which the internal audit function, employees and others are able to report fraud and other unethical practices that may come to their attention. Employees are a good source of information concerning possible issues that may arise. These issues may be considered and dealt with through internal controls prior to any damage to company brand or reputation.

When issues are reported to the audit committee through whistleblowing mechanisms, the actions include:

  • Investigating and documenting the issues and its findings
  • Accessing and checking with legal advisers regarding appropriate action
  • Reporting on its findings in a report from the audit committee to the board and to relevant senior members of management
  • Ensuring that management has taken appropriate action

The emphasis at RAK Insurance is on good governance and regulatory compliance is not just an option, it makes good business sense. It guides for corrective actions, protects value, is the right thing to do and enhances our reputation in the eyes of all our stakeholders. The board has overall responsibility for strategic leadership, risk management and the stewardship of the company. They focus on making sure that RAK Insurance is well run, achieves its business objectives and takes a balanced approach to risk and reward.

RAK Insurance has a strong governance and organisational framework that gives direct accountability and ownership to individuals, promotes transparency in our activities and sets the standard for acceptable and ethical behaviour. In particular, risk management and corporate responsibility are embedded in how we run our business.