Instructions on the Institutional Governance of Reinsurance Companies and the Principles of Their Regulation and Management No. 2 of 2010

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[Logo of the Hashemite Kingdom of Jordan]

The Official Gazette
of the Hashemite Kingdom of Jordan

[Map of the Hashemite Kingdom of Jordan]

Amman: Monday, 15 Rabi' al-Awwal 1431 AH. Corresponding to January 1, 2010 AD.

Issue Number: 5016

Issued by the Prime Ministry - Official Gazette Directorate Website: www.pm.gov.jo

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Instructions No. (2) of 2010
Instructions on the Institutional Governance of Reinsurance Companies and the Principles of Their Regulation and Management Issued by the Board of Directors of the Insurance Commission pursuant to the provisions of Paragraph (b) of Article (45), Article (101), and Paragraph (b) of Article (108) of the Insurance Business Regulation Law No. (33) of 1999 and its amendments

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Article (1):
These Instructions shall be known as the "Instructions on the Institutional Governance of Reinsurance Companies and the Principles of Their Regulation and Management for the Year 2010" and shall come into effect from the date of their publication in the Official Gazette.

Article (2):
A- The words and phrases contained in these Instructions shall have the meanings assigned to them in Article (2) of the Insurance Business Regulation Law No. (33) of 1999 and its amendments, unless the context indicates otherwise. B- For the purposes of these Instructions, the following words and phrases shall have the meanings specified below:
The Law: The Insurance Business Regulation Law currently in force.
Principles of Regulation and Management of a Reinsurance Company: The set of relationships, between the Board of Directors of the Reinsurance Company, its executive management, its shareholders, and other relevant parties, which aim to achieve the interests of the Reinsurance Company, the interests of insurance companies, and the insured, and to monitor the achievement of those objectives and the extent to which the Reinsurance Company adheres to the principles of justice, transparency, disclosure of its financial position and performance, ownership, and compliance with relevant legislation.

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Executive Management: Senior officers in the Reinsurance Company entrusted with the management of daily business operations, including the General Manager of the Reinsurance Company, the Authorized Manager, the Deputy General Manager of the Reinsurance Company, and the Assistant General Manager of the Reinsurance Company. Control: The direct or indirect ability to exercise effective influence on the business and decisions of another person. Affiliate: A person who controls another person, or who is himself controlled by another person, or who shares in being controlled by a single person.

Board of Directors of the Reinsurance Company

Article (3):
The Board of Directors of the Reinsurance Company shall be responsible for setting the company's general policies and supervising their implementation. The Board of Directors of the Reinsurance Company shall have the responsibilities and authorities stipulated in the Law, regulations, instructions, and decisions issued pursuant to any of them, and relevant legislation concerning the business and activities of the Reinsurance Company. These responsibilities and authorities shall include, at a minimum, the following:
A- Determining the strategic objectives of the Reinsurance Company and the necessary procedures for supervising their implementation and evaluation, with the condition that those objectives be reviewed and the extent of compliance with them assessed annually or within the year if necessary. B- Appointing the General Manager of the Reinsurance Company and approving the appointment of the Deputy General Manager and Assistant General Manager of the Reinsurance Company based on the proposal of the General Manager of the Reinsurance Company.

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C- Approving the organizational structure of the Reinsurance Company and approving internal regulations and instructions to define the tasks and authorities of the executive body of the Reinsurance Company, ensuring administrative and financial control over the company's business. D- Adopting the principles for determining the compensation of members of the Board of Directors and Executive Management in the form of salaries, allowances, bonuses, etc., in a manner that serves the interests and goals of the Reinsurance Company and is consistent with relevant legislation. E- Establishing necessary procedures to ensure that no member of the Board of Directors or Executive Management achieves any self-interest at the expense of the Reinsurance Company's interests. F- Establishing procedures to ensure that the Reinsurance Company complies with the provisions of the Law, regulations, instructions, and decisions issued pursuant to any of them, and with the provisions of any other legislation concerning its business and activities. G- Ensuring the existence of a risk management system compatible with the size of the Reinsurance Company's business and the nature of its activity, covering all aspects of its operations, and creating an effective mechanism to ensure regular evaluation of the risk management policy. H- Taking necessary measures to disclose information regarding the financial position of the Reinsurance Company and providing relevant authorities with that information in a timely manner. I- Determining the mechanism by which members of the Board of Directors of the Reinsurance Company, collectively or individually, if necessary, obtain technical consultations from outside the Company to enhance their performance of duties, at the Company's expense. J- Communicating with relevant regulatory and supervisory authorities concerning the business of the Reinsurance Company if the Board of Directors deems it appropriate. K- Forming necessary committees to execute its tasks, with the Board of Directors of the Reinsurance Company determining the responsibilities of these committees and the working mechanism of each.

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L- Developing a work plan to apply the principles of institutional governance contained in these Instructions and other relevant legislation, and reviewing and evaluating the extent of their application annually.

Article (4):
Subject to the provisions of Articles (31) and (32) of the Law and other relevant legislation:
A- The Reinsurance Company shall ensure that its Board of Directors consists of a suitable number of qualified members, not less than seven, and that these members possess the necessary knowledge, experience, and skills to supervise and follow up on the affairs of the Reinsurance Company. B- 1- The number of independent members of the Board of Directors of the Reinsurance Company shall not be less than one-third of the members of the Board of Directors of the Reinsurance Company who are not members of the Executive Management. 2- For the purposes of these Instructions, an independent member of the Board of Directors of the Reinsurance Company is defined as a member who has no connection with the Reinsurance Company or any other affiliated insurance or reinsurance company or any of their directors that conflicts or is likely to conflict with the member's independence in making decisions. C- For the purposes of Paragraph (B) of this Article, the following situations are considered to affect the independence of a member of the Board of Directors of the Reinsurance Company:
1- If the member of the Board of Directors of the Reinsurance Company is an employee of a reinsurance company or any other affiliated insurance or reinsurance company during the period of holding office or during the two financial years preceding it. 2- If the member of the Board of Directors of the Reinsurance Company is related by marriage or kinship up to the second degree to one of the senior officers of the Reinsurance Company or any affiliated insurance or reinsurance company, and this relationship existed during the three preceding financial years. 3- If the Board member owns (5%) or more of the shares of the Reinsurance Company.

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4- If the Board member has control over the Reinsurance Company.
5- If there is a consulting relationship or direct or indirect commercial benefit between the Board member and the Reinsurance Company or any other affiliated insurance or reinsurance company, or if the independent member accepts any bonus or compensation from the Reinsurance Company or any affiliated insurance or reinsurance company other than the bonus or compensation for services provided to the Board of Directors for the current financial year or during the three preceding financial years. D- The Board of Directors of the Reinsurance Company may, despite the presence of one or more of the situations in a Board member as stated in Paragraph (C) of this Article, consider this member independent, provided that the member's situation is fully disclosed and the reason for considering them independent is justified.

Executive Management

Article (5):
The General Manager of the Reinsurance Company shall be committed to the following:
A- Managing the business of the Reinsurance Company and providing guidance to the executive body in accordance with the strategic objectives of the Reinsurance Company, the policies approved by its Board of Directors, and the provisions of the Law, regulations, instructions, decisions issued pursuant to any of them, and other relevant legislation concerning the business and activities of the Reinsurance Company. B- Providing the Board of Directors of the Reinsurance Company with accurate periodic reports on the company's financial status, business operations, risk management procedures, and the internal control and audit system, to enable the Board of Directors to review the set objectives, plans, and policies, and to hold Executive Management accountable for its performance. C- Providing members of the Board of Directors of the Reinsurance Company with any information and documents necessary for Board of Directors meetings in a timely manner.

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D- Providing recommendations regarding any proposals deemed necessary concerning the business of the Reinsurance Company.
E- Providing the Commission with any information, data, and documents required according to the provisions of the Law, regulations, instructions, and decisions issued pursuant to any of them.

Article (6):
Subject to the provisions of Articles (31), (32), and (33) of the Law, competence and experience in insurance business are required in the Executive Management appointed after the entry into force of these Instructions, as follows:
A- The General Manager of the Reinsurance Company must possess any of the following:
1- A bachelor's degree and actual practical experience in insurance-related matters of not less than eight years, with the General Manager having the authority to reduce this period for holders of a PhD or Master's degree in related fields or for holders of a professional qualification in the insurance field. 2- A professional qualification in the insurance field and actual practical experience in insurance-related matters of not less than fifteen years. 3- Actual practical experience in insurance-related matters of not less than twenty years. B- The Deputy General Manager and Assistant General Manager of the Reinsurance Company must possess any of the following:
1- A bachelor's degree and actual practical experience in insurance-related matters of not less than five years, with the General Manager having the authority to reduce this period for holders of a PhD or Master's degree in related fields or for holders of a professional qualification in the insurance field. 2- A professional qualification in the insurance field and actual practical experience in insurance-related matters of not less than ten years.

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3- Actual practical experience in insurance-related matters of not less than fifteen years.
C- For the purposes of applying the provisions of this Article, the General Manager's approval of professional qualifications and practical experiences submitted is required.

Audit Committee

Article (7):
Subject to the provisions of relevant legislation, the Board of Directors of the Reinsurance Company shall form an Audit Committee as follows:
A- The Audit Committee shall be formed of a chairman and two members, at least one of whom must have experience in auditing, accounting, or finance, or be a certified public accountant according to relevant prevailing legislation. They shall be elected by the Board of Directors of the Reinsurance Company from among its members who are not members of the Executive Management or any committees formed by the Board. The Audit Committee shall meet at least once every three months or whenever necessary. B- The authorities and tasks of the Audit Committee shall be clearly defined to enable it to perform its work, including the following:
1- Recommending to the Board of Directors of the Reinsurance Company the nomination of the external auditor for election by the General Assembly.
2- Supervising the comprehensiveness of external audit systems regarding the business of the Reinsurance Company.
3- Verifying coordination between the work of external auditors in case there is more than one auditor.
4- Reviewing observations contained in the reports of the Insurance Commission and the external auditor, and following up on the measures taken regarding them.

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5- Studying the annual internal audit plan, reviewing observations contained in internal audit reports, and following up on the measures taken regarding them.
6- Ensuring the accuracy, integrity, and compliance of accounting, financial, and supervisory procedures.
7- Verifying that financial data is reviewed by the internal auditor before being presented to the Board of Directors of the Reinsurance Company, and specifically verifying compliance with the Commission's requirements. 8- Ensuring that the Reinsurance Company complies with the laws, regulations, instructions, and decisions governing its business and activities. 9- Meeting with external and internal auditors and the appointed or certified actuary, as appropriate, at least once a year, without the presence of representatives of the Executive Management of the Reinsurance Company. 10- Recommending to the Board of Directors of the Reinsurance Company the approval of the appointment, resignation, or dismissal of the internal auditor. 11- Presenting the minutes of its meetings and the reports it prepares to the Board of Directors of the Reinsurance Company. 12- Any other tasks assigned to it by the Board of Directors of the Insurance Commission. C- The Board of Directors of the Reinsurance Company shall disclose in the annual report the names of the members of the Audit Committee, its activities, and the number of meetings held during the year.

Risk Management and Internal Control and Audit System

Article (8):
A- The Reinsurance Company must have a written risk management policy compatible with the size of its business and the nature of its activity, sufficient to identify, measure, evaluate, disclose, and contain risks as quickly as possible. To ensure the effectiveness of this policy, it must include the following:
1- Covering all aspects of the Reinsurance Company's operations and setting clear metrics and limits for each type of risk and procedures for dealing with them. It must be ensured that all employees, according to their administrative level, are fully aware of and knowledgeable about them. 2- Monitoring the Reinsurance Company's compliance with the risk management policy and limits of all types of risks. 3- The Reinsurance Company must follow procedures that ensure timely delivery of information to decision-makers regarding any material breaches and the necessary steps to address those breaches, followed by monitoring their implementation. 4- Regular evaluation of risk management procedures and policies and their limits, based on the severity of potential problems, the Reinsurance Company's strategy, and market developments. B- The Reinsurance Company must establish the necessary internal arrangements to manage and monitor all risks arising from all its operations.

Article (9):
A- The Reinsurance Company must establish a documented internal control and audit system approved by its Board of Directors, compatible with the size of its business and the nature of its activity and relevant legislation, supported by information systems that ensure information auditing. This system must be reviewed periodically by the internal and external auditors and the actuary to ensure its compatibility with the provisions of relevant legislation and to evaluate its effectiveness and adequacy.

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B- The internal control and audit system of the Reinsurance Company referred to in Paragraph (A) of this Article must include, at a minimum, the following:
1- Providing a supervisory environment within the Executive Management according to the organizational structure and compatible with the nature of the Reinsurance Company's work, clearly indicating communication lines and responsibilities for each administrative unit. 2- Existence of a detailed job description of required qualifications and a manual of work and detailed procedures for executing the various business operations of the Reinsurance Company. 3- Availability of supervisory controls and separation of responsibilities, and ensuring separation between the bodies responsible for risk management and those monitoring those risks. 4- Procedures approved by the Board of Directors of the Reinsurance Company that ensure effective and timely delivery of information to decision-makers, including a plan for dealing with emergency situations. 5- Clear monitoring principles for all business operations of the Reinsurance Company executed by external parties to verify that execution is carried out according to the internal monitoring controls adopted by the Reinsurance Company.

Internal Audit

Article (10):
The Internal Auditor shall audit the effectiveness and adequacy of the internal control and audit system and the operations of the Reinsurance Company according to the size of its business and the nature of its activity, including the following:
A- That the Reinsurance Company operates in accordance with the provisions of the Law, regulations, instructions, and decisions issued pursuant to any of them.

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B- That the Reinsurance Company conducts its business properly and in conformity with its strategic objectives and the policies approved by its Board of Directors.
C- That all operations in the Reinsurance Company are carried out according to the responsibilities and authorities determined by its Board of Directors.
D- That the Reinsurance Company applies accurate and sound accounting and supervisory procedures.
E- That the use of the Reinsurance Company's assets and properties is done correctly, appropriately, and according to proper standards.
F- That the records and files of the Reinsurance Company are complete, accurate, and contain all necessary information.
G- That internal audit standards are applied to services provided by external parties in the same manner as applied to other internal operations of the Reinsurance Company.
H- That the management of the Reinsurance Company is continuously able to identify, evaluate, and manage business risks and that it maintains a sufficient capital base to face these risks.
I- That the Executive Management of the Reinsurance Company responds to the decision of its Board of Directors regarding the recommendations of the Audit Committee based on the Internal Auditor's reports.
J- Informing the Board of Directors of the Reinsurance Company immediately of any defect, deficiency, or threat, and following up with those concerned to take necessary corrective actions.
K- Providing regular reports to the Board of Directors of the Reinsurance Company regarding the adequacy and effectiveness of the internal control and audit system.

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Article (11):
The Internal Auditor shall perform the following:
A- Submit a report on the results of the internal audit process stipulated in Article (10) of these Instructions, which must include, at a minimum, the following:
1- The scope of the audit, audit procedures, and time of completion.
2- The financial status of the Reinsurance Company, the quality of assets, the extent of compliance with prevailing legislation, and observations of the external auditor.
3- Points of weakness, fraud, or material violations, if any.
4- Corrective measures to be taken if necessary.
B- Submit a future annual work plan before the end of the preceding year, which must include the scope of the audit, audit procedures, and the time required for completion.
C- Retain the report on the results of the internal audit process and related documents and records for a period of not less than five years from the date of the audit.

Article (12):
The Internal Auditor must meet the following requirements:
A- Be completely independent, reporting his reports and recommendations directly to the Audit Committee.
B- Maintain the confidentiality of the work and documents in his possession.
C- Practice his work professionally, in good faith, and with competence.
D- Possess appropriate knowledge, competence, and experience.
E- Adhere to international practices and standards for the internal audit profession.

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Article (13):
The Reinsurance Company may appoint an internal auditor or form an internal audit unit according to the size of its business and the nature of its activity. In all cases, the provisions of Articles (10), (11), and (12) of these Instructions shall apply to the Internal Auditor and the Internal Audit Unit as appropriate.

General Provisions

Article (14):
A- The Reinsurance Company shall provide the General Manager with the following:
1- Its policy regarding the internal control and audit system annually.
2- A list of the names, qualifications, and experience of the Audit Committee.
3- A list of the name, qualifications, and experience of the Internal Auditor.
4- Copies of all external auditor's observation books related to interim audits within a period not exceeding three months from the beginning of the financial year.
5- The Internal Auditor's report, along with the final statements of the Reinsurance Company, which must include his most important observations and the results of his work.
B- The Reinsurance Company shall inform the General Manager immediately of any change or modification occurring to Item (2) or (3) of Paragraph (A) of this Article.

Article (15):
The Reinsurance Company shall be committed to disclosing the following:
A- The relationship between its Board Chairman and its General Manager, if any.
B- The organizational structure of the Company, including the structure of its Board of Directors and Executive Management, with a statement of the qualifications and experience of each.

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C- The bonus policy for both members of its Board of Directors and Executive Management.
D- The main risks it faces and its risk management policy.

Article (16):
If, due to the General Assembly elections of the Reinsurance Company, it is impossible to elect one-third of the members of its Board of Directors from independent members according to the provisions of these Instructions, the Reinsurance Company shall inform the General Manager thereof, and the General Manager shall direct the Company to take appropriate measures.

Article (17):
The provisions of these Instructions shall apply to the Authorized Manager, the branch of the foreign insurance company, and the exempted reinsurance company to the extent applicable to them and as determined by the General Manager for this purpose.

Article (18):
The General Manager shall issue the necessary decisions to implement the provisions of these Instructions.

Board of Directors of the Insurance Commission ---