Global Captive Management’s James Trundle reflects on board self-assessments in Cayman captives
Everyone is their own worst critic, right? We are all guilty of over-analysing conversations, whether they be work-related or personal. Did I say the right thing? Did I talk too much?
We understand our own flaws, our short-comings, or our failings, but half of the battle is knowing what they are and recognising how to correct them. We all need to keep developing and improving; there is nothing wrong with striving to be a better person.
If we apply these principles to our personal development, it stands to reason we should also apply them to our businesses. Captive insurance companies are no exception to this. In fact, the Cayman Islands Monetary Authority (CIMA) even formalised this in its Rule on Corporate Governance (the Rule), which was effective from October 2023. Section 5.6.2 (d) notes the requirement of the “governing body” to “undertake appropriately executed self-assessments of the performance of the governing body (as a whole) and individual members”. The requirement is for this to happen at least annually, and it has been a focus of recent regulatory inspections of licensed entities performed by CIMA.
In simple terms, CIMA wants the board of directors of any insurance company to look in the mirror each year and assess how they are performing.
In many instances, captive boards are already familiar with this process because self-assessments are occurring regularly at the various parent company levels.
In 2023, 97 per cent of S&P 500 entities disclosed details of their overall board evaluation process and in the UK, 41 per cent of boards were conducting an external evaluation process.
A thorough evaluation process at the captive level prompts directors to assess the relevant areas and risk management strategies applicable to the insurance company, which will be different from its parent company or group.
At Global Captive Management (GCM), we have worked in collaboration with our boards in crafting appropriate corporate governance frameworks that ensure compliance with all requirements in the Rule and include an annual assessment for each board to consider and review as a group. In accordance with the Rule, we individually administer the assessment to each director, enabling them to assess their individual contributions to the board and the overall performance of the board.
Any deficiencies identified during the assessment process are “remedied and documented” as per the terms of the Rule.
Each captive is different, and each board is different. However, there are striking similarities across all our captive clients’ self-assessments.
First is the composition of the board of directors. We ask each board member to look around the table. Is this board of directors composed of members with a diverse range of skills, knowledge, and experience, including those with expertise in finance, insurance, and risk management? The board must also take into account each director’s succession plan and ensure that the captive adequately documents it.
Second, we focus on compliance. Completion of an annual conflict of interest and code of conduct disclosure statement by each director is a mandatory requirement under the rule. Other compliance considerations include whether the board is receiving adequate training on the Cayman Islands Anti-Money Laundering regime and whether the board is devoting enough time to consider the company’s compliance with all acts and regulations.
GCM acts as the compliance gatekeeper for all our captive boards to ensure the directors can review this area of the assessment and answer it positively.
We provide detailed updates on legal and regulatory developments to the boards, along with adequate and appropriate training on compliance and anti-money laundering matters.
The final piece of the assessment focuses on the activities of the board to ensure that sufficient time is dedicated to considering the operations of the captive.
This includes a review of the company’s CIMA-approved business plan, all policy-related matters, and a review and assessment of the financial statements and financial performance of the captive.
The annual evaluation process helps highlight areas where a board excels and other areas that require improvement. This fosters a culture of accountability at the board level and enhances the captive’s risk management process by identifying any governance risks that could have a detrimental effect on the captive’s reputation.
The assessment pushes board members to be open about their roles and responsibilities, as well as the overall dynamics of the board. Finally, the process should increase stakeholder confidence, as the continuous assessment demonstrates a commitment to transparency and accountability.
We also need to recognise how important the concepts of self-assessment and strong corporate governance are for CIMA. In the past 18 months, GCM has seen a change to the focus of CIMA’s routine on-site regulatory inspections, which are ensuring the appropriate application of the Rule including a robust approach to the self-assessment concept.
The principle of self-assessment and striving for continuous improvement is not just for our captive clients. It is part of the GCM culture. Development of our team and improving what we offer are an integral part of our strategic plan. Our internal annual assessments heavily incorporate feedback from clients and service providers. All of this enhances our ability to work effectively with our clients for our combined success.
So, is there anything wrong with being your own worst critic? There is a famous quote that says: “Your harshest critic is always going to be yourself. Don’t ignore that critic, but don’t give it more attention than it deserves.” In other words, we all need to apply an appropriate level of self-assessment to ourselves, our businesses, and our captives. We can become stronger with a little self-reflection and by analysing what we are doing well and areas we can improve.
