Netherlands: Legislative Basis For Insurers Code

On 6 September 2011, the Insurers Governance Principles Monitoring Committee was appointed, with Ferdinand Grapperhaus as the Chairperson. This committee will monitor the application of the Governance Principles (referred to below as the 'Insurers Code'), a code of conduct drawn up by the Dutch Association of Insurers which entered into force on 1 January 2011. Effective 1 September 2011, the Insurers Code has been given a legislative basis in the sense that Dutch insurance companies are now obliged by law to include in their annual report a statement regarding their compliance with the principles of the Code. This newsletter describes the most important aspects of the Insurers Code. The OECD's new Guidelines on Insurer Governance, which were adopted in May 2011, will be discussed briefly as well.

Scope of application

The Insurers Code applies to all insurance companies having a licence granted pursuant to the Dutch Financial Supervision Act (Wet op het financieel toezicht, the "DFSA"), i.e. insurance companies with: 

  • activities in the Netherlands;
  • cross-border activities in another EU member state performed from the Dutch head office; or
  • activities in another EU member state performed through a branch office.

With respect to the following activities, application of the Insurers Code is merely recommended:

  • activities of DFSA-licensed insurance companies performed from the Dutch head office or through a branch office in non-EU member states;
  • activities of independent foreign insurance subsidiaries of DFSA-licensed insurance companies; and
  • activities in the Netherlands (whether or not performed through a branch office) of insurance companies with a licence granted in another EU member state.

'Comply or explain'

The Insurers Code is built on a 'comply-or-explain' system, meaning that the insurance company must, in principle, apply the Code's rules, unless it has a reasoned justification for not doing so. Such a justification might include the insurance company's specific characteristics, such as its legal form, the market in which the insurance company operates or the insurance company's governance structure.

Legislative basis

By a decree dated 23 August 2011 and in effect since 1 September 2011, the Insurers Code has been given a legislative basis. Insurance companies are required by law to explain in their annual report (either in the body or an appendix) or on their website how they have applied the Code. This obligation only applies to insurance companies which:

  • are licensed under the DFSA; and
  • have their corporate seat in the Netherlands (i.e. are incorporated under Dutch law).

As explained above, the Insurers Code itself has a wider scope: its substantive provisions are applicable to all insurance companies that have a licence to operate as such under the DFSA, even if they are not incorporated under Dutch law.

The legal obligation to report on compliance with the principles of the Insurers Code will apply for the first time to annual reports covering a financial year starting on or after 1 January 2011. If an insurance company has not complied with certain principles and has no intention of complying in the current or coming financial year, it is obliged to provide a reasoned explanation for this.

An insurance company that heads a group of insurance companies may elect to report on compliance for the group as a whole. It is then sufficient for the insurance company's subsidiaries simply to refer to that statement, provided they clearly indicate in their annual report where the statement can be found. This exemption does not apply to insurance company's subsidiaries with a stock exchange listing.

The Dutch Authority for the Financial Markets (AFM) checks whether listed insurance companies have included the comply-or-explain statement in their annual report and whether its content is consistent with the information in the rest of the annual report.

Major topics regulated by the Insurers Code

The Insurers Code was drawn up in response to the financial crisis. Against this backdrop, the substance of the Insurers Code pertains mainly to risk management and restoring trust. The Code, which is substantively modelled on the Banking Code, lays out principles and best practices regarding:

  • management boards and supervisory boards;
  • risk management;
  • audits; and
  • remuneration policies (especially variable remuneration).

Management board and supervisory board

Composition and expertise

The composition of the management board and supervisory board plays a significant role under the Insurers Code. The basic notion is that collegiality, diversity and complementary skills among the boards' members enable the boards to fulfil their duties better. For the supervisory board, independence is another key trait.

The Insurers Code also contains various rules safeguarding that management and supervisory board members have the necessary expertise. Financial expertise and knowledge of the insurance world are paramount. A new element is that management and supervisory board members should receive continuing education to maintain and broaden their expertise.

Declaration on moral and ethical conduct

Management board members should sign a moral and ethical conduct declaration. This declaration should also be translated into principles governing all employees. The intention is to help embed principles such as integrity, transparency and client focus in the insurance company's culture.

The client's position in relation to decision-making

In taking decisions, the management board should duly consider the interests of the various parties involved in the insurance company, such as shareholders, employees and clients.

Under the Insurers Code, 'putting the client first' is essential to safeguarding the insurance company's continuity. The management board should ensure that the client is treated properly and that a client-oriented approach becomes an integral part of the insurance company's culture. With respect to a similar principle in the Banking Code, the Banking Code Monitoring Commission previously remarked that implementation of the 'client first' concept concerns more than just client service and client satisfaction. It demands a fundamental inquiry into the corporate culture, and encompasses a range of issues within the company, including the company's core values, the product approval process and the remuneration model.

Risk management

The management board is responsible for the overall risk policy. One of the management board members should be charged with preparing the risk management decision-making process. This management board member may not have any commercial responsibilities and should operate without regard to the management board's other commercial tasks.

The crucial risk management role assigned to the supervisory board by the Insurers Code is particularly noteworthy. In addition to generally supervising the risk policy pursued by the management board, the supervisory board should:

  • appoint a risk committee made up of supervisory board members with a thorough knowledge of the specific financial aspects of risk management;
  • approve, at least once a year, the risk appetite policy presented by the management board to the supervisory board; and
  • periodically evaluate whether the insurance company's business activities are in fact consistent with its risk appetite policy.

Product approval process

Another obligation which is designed to lead to improved risk management is the introduction of a product approval process. Before a product can be marketed or distributed, the insurance company should meticulously weigh the risks and should properly review such other aspects as the duty of care towards the client.


Under the Insurers Code, the management board should establish a system for monitoring the management of risks associated with the insurance company's commercial or other activities. Such internal auditing needs to include an assessment of the effectiveness of the internal risk management measures.

The external auditor's report to the management board and supervisory board should contain findings on the quality and effectiveness of the insurance company's governance system, risk management and risk management monitoring procedures.


The remuneration section of the Insurers Code is designed to discourage risky behaviour. With this purpose in mind, the Code states the following rules:

  • The remuneration policy has to take into account the insurance company's long-term interests, the relevant international context and the degree of public acceptance and support.
  • Limits need to be set on the amount of the management board members' remuneration. The remuneration should be somewhat below the average for comparable positions inside and outside the financial sector. According to the explanation of this rule, this means that the remuneration should be in line with, but not run ahead of, market trends.
  • Severance payments to management board members should not, in principle, exceed one year's salary.

In addition, the Code contains various provisions on bonuses (variable remuneration) for management board members:

  • Bonuses should be based as much as possible on objective performance criteria which are not only financial, but also non-financial, in nature. Among these criteria are client satisfaction, risk management, investor relations, operational targets, human resources, integrity, compliance and sustainability.
  • A 'bonus ceiling' needs to be established. Each insurance company should determine a maximum ratio between variable remuneration and fixed salary which is appropriate for that insurer. The variable remuneration for a management board member should not exceed 100% of the fixed salary.
  • When variable remuneration is awarded to the management board, the long-term goals of the insurance company should be taken into account as well as, among other things, the insurance company's profitability and/or continuity. A substantial part of the variable remuneration should be granted conditionally and be paid out no earlier than after three years. 
  • The supervisory board should have the power to adjust management board members' variable remuneration if, in its view, the planned remuneration will lead to unfair or unintended results. The supervisory board should likewise be able to reclaim the variable remuneration if this was awarded to the management board member based on incorrect financial or other information (a 'clawback' provision).

Further, it should be mentioned that the 'Regulation on Sound Remuneration Policies 2011 pursuant to the Financial Supervision Act (Regeling Beheerst beloningsbeleid Wft 2011) took effect on 1 January 2011. This statutory regulation implements the CRD III Directive. With regard to bonuses, the Regulation deviates somewhat from – and is in some ways more stringent than – the Insurers Code. For further information on this Regulation, we refer to our newsletter Implementation of CRD III remuneration rules' from 29 March 2011. 

International developments

OECD Guidelines on Insurer Governance 2011

The OECD recently revised the insurance industry guidelines dating from 2005. The new 'OECD Guidelines on Insurer Governance 2011' were adopted on 19 May 2011. The Guidelines include rules on the governance structure, the internal control mechanisms (risk management), groups and conglomerates, and shareholder protection. As in the Insurers Code, the primary concerns are management board expertise, independent supervision and effective risk management. Attention is also given to awareness of contagion risks within the group. To safeguard the interests of the stakeholders (such as policyholders, employees and creditors), the Guidelines recommend that insurance companies provide good information, institute 'know your client' procedures and put proper complaint‑handling processes into place.

These provisions are not mandatory, but are intended to guide insurance companies and authorities in developing or revising the corporate governance structure.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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