Rcpubfic cil'thi: Philippines

BEE"ART3lENTOF FINANCE
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Sr Street
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DEPARTMENT ORDER NO. 0 5 4 - 2 01 5

-
95 April 2035

SUBJECT : ADOPTION OF GUIDELINES PRESCRlBfNG THE F3T AND

PROPER RULE FOR DIRECTORS OF INSUWNCE GOMliPAMlES
AND PUBL1G COMPANIES

WHEREAS, the insurance Commission ("IC") is authorized to issue rulings,

instructions, circulars, orders and decisions to ensure the efficient regulation of the
insurance industry in accordance with global best practices and to protect the insuiing
public;
WHEREAS, the IC is attached to the Department of Finance ("DOF") lor
purposes of policy and program coordination, in accordance w%h the AdminisZrative
Code of 1987;
WHEREAS, the Securities and Exchange Commission ("SEC") is vested with
jurisdiction and supervision over all corporations who are the grantees of primary
franchises andlor licenses or permits issued by Zhe Government and is mandated to
foster good governance and enhance investor protection;
WHEREAS, the administrative supervision over the SEC was given to the DOF,
puwuant to Executive Order ("EO") No. 37. s.2031, primarily in view of the need lo
ensure effective financial sedor coordination;
WHEREAS,moved by the necessity to build a strong and stable financial system,
the National Government is interested to promote good governance in the pitvate sector,
considering the sizeable role of the latter in the country" economic grovlRh and
development;
WHEREAS, it is desirable to adopt a system for recognition of exemplary public
companies and insurance companies (%overed entities") employing the highest
standards in corporate governance, with particular emphasis on ensuring that the
directors of said covered entities are M and proper to hold such position, in order to
encourage members of the private sector to aspire for said highest standards;
NOW, THEREFORE, in consideration of the forqoing premises, the following
instructions are hereby issued:
Section 1. Ranking System. 1C and SEC shall promulgate guidelines and shall
implement a system for ranking insurance companies and public companies,
RE: Adoption of Guidelines Prescribing the Fit and Proper Rule for
Directors of Insurance Companies and Public Companies
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respectively, in terms of company practices employed in ensuring that directors are fit
and proper t o hold such position. These guidelines shall include criteria on integr~ty,
experience, education, training and competence, and shall be consistent w1t9-i the
standards heaetn set forlh

The ~mplemenbationof the ranktng system and the standards set footh in this
Department Order shall b e without prejudice to, and shall be consistent w~th,all
applicable laws and exist~ngrules and regulations of the 86 and the SEC

Section 2. Annual Ranking and Recognition. IC and SEC shall, on a n annual

basis, rank covered entities in accordance with the ranking system respectively
promulgated pursuant 20 Section 1 hereof. The annual ranking generated by the 1C and
SEC shall be used as basis ior recognizing insurance companies and public companies
employing the highest standards in ensuring that their directors a r e fit and proper to
hold such position.

Section 3. Definilion of Terns.

The term L i n ~ u r a n ~company"

e shall include all partnerships, associations,
cooperatives or corporalions, duly authorized by the 16 lo transact insurance business
in the Philippines, excepting mutual benefit associations. For purposes of this
Department Order, t h e t e r n shall also include professional reinsurers, or e n t i e s that
transact solely and exclusively reinsurance business in the Philippines.

The term "public company" shall refer to a corporation duly registered w ~ l hthe
SEC having the following characteristics:

a Has a class of equity securities listed on a n Exchange; or

b. Mas assets in excess of Fifty Million Pesos (PS0.000,000.00) and having
two hundred (200) or more hoiders, at least two hundred (200) of which
are holding at least one hundred (109) shares of a class of the
corporation's equity securities.

Sectjon 4. Ideal Minimum Qualifications of a Director. A director shall ideally have

the follo\Njng minimum qual~fications

a. At !east tyvenw-five 125) years of a g e at the lime of his election or

appointment;
b. At least a coliege graduate or h a s a t least five (5)years experience in
busfness;
c. Has attended a special seminar on corporate governanoe for board of
directors conducted or accredited by SEC: or 1C as may be applicable; and
d. Must b e fit and proper for the position of a director of the covered entity,
taking into account the following factors: integdtylprobity, competence,
relevant educationhraining (e.g., financial literacy), physical and mental
fitness, diligence, and knowiedge/experience.
RE: Adoption of Guidelines Prescribing the Fiand Proper Rule for
Directors of Insurance Companies and Public Companies
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 Section 5. ideal Qualifications of an Independent Director. An independent
director shall refer to a person who, ideally:
a. Is not more than eighty (80) years old, unless otherwise found fit to
continue serving as such by SEC or IC;
b. Is not or has not been a member of the executive cornminee of the board
of directors, or an officer or employee, of the covered entity, its
subsidiaries, affiliates or related companies during the three (3) years
immediately preceding the date of his election;
c. Is not a director, officer, or employee of the related companies of the
covered entity's majority shareholders;
d. Is not a "substantial shareholdef', ie., does not ownihold shares of stock
sufficient to elect one (I) seat in the board of directors of either the
covered entity, its subsidiaries, aRliates, or any related companies of its
majoriw corporate shareholders;
e. Is not a relative within the fouah degree of consanguinity or affinity,
Iegitimate or otherwise, of a director, officer, or substantial shareholder of
the covered entity or any of its related companies;
f. Is not acting as a nominee or representatwe of any director or substantial
shareholder of the covered entity or any of its related companies;
g. ISnot retained, within the three (3) years immediately preceding the date
of his election, either in his personal capacity or through a firm, as a
professional adviser, consultant, agent or counsel of the covered entity,
any of its related companies or substantial shareholders; is otherwise
independent of management and free from any business or other
relationship within the three (3) years immediately preceding the date of
his election ; and
h. Does not engage or has not engaged, whether by himself or with other
persons or through a firm of which he is a partner, director or substantial
shareholder, in any transaction with the covered entity or any of its refated
companies or substantial shareholders, other than such transactions that
are conducted at arm's length and could not materially interfere with or
influence the exercise of his judgment.

Section 6. Ideal Minimum Number of independent Djrecfors. At least tvventy

percent (20%) but not less than two (2) members of the board of directors shall be
independent directors: Provided, That any fractional result from applying the required
min~mumproportion, i.e., 20%, shall be rounded up to the nearest whole number.

For publicly-listed corporations, the number of independent directors shall be

proportionate to the percentage of shares held by the public.

Section 7. Ideal Tenure. An indewndent director shall ideally serve for five (5)
consecutive years. After completion of five (5) consecu~veyears, the covered entity
shall ideally consider him ineligible for re-election,. which ineligibility may be li&&
after
the lapse of a "cooling period" of two (2)years: Provided, that during such period, he

RE: Adoption of Guidelines Prescribing the Fit and Proper Rule for
Directors of Insurance Commnies and Public Companies
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has not engaged in any activity that, under existing rules, disquafiftes a person from
being elected as independent director in the same entity. The former independent
director who has undergone the aforemention& cooling pt??iQdmay be re-elected to
another term of five (5) years. After serving for a cumulative period of ten (10) years, an
independent director is ideally perpetually baned from being elected in the same
covered entity.

Section 8. Ideal Remuneration. A fixed amount of remuneration shali ideally be

given to independent directors at the level sufficient to attract and retain the quatity of
directors to run the company successfully. Entitlement to such fixed amount shall ideally
be based on the results of an indepndent ratings mechanism vvhich shall be
estabilished for purposes of evaluating the perfomance of independent directors. Stock
options and perfomanm benefits of any kind shall ideally not be includttd in their
remuneration package.

Section 9. Separabiliw Clause. If any part of this Depastment Order is

declared by the courts as unconstitutional or contrary to existing l a w , the other parts
shall remain in full force and effect.

Section 10. Efiectivi&.-This Order shall take effect immediately and all
concerned shall be guided accordingly.

RE: Adoption of Guidelines Prescribingthe Fit and Proper Rule for

Directors Insurance Companies and Public Companies
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