Stewardship Code for Insurers in India

The Stewardship Code for Insurers in India is designed to enhance the level of engagement between insurers and the companies in which they invest, promoting good corporate governance and ensuring long-term value for policyholders and stakeholders. Introduced by the Insurance Regulatory and Development Authority of India (IRDAI), the code outlines principles and guidelines for insurers to follow. Here are the in-depth details:

Key Principles of the Stewardship Code

1. Policy on Stewardship:
   • Requirement: Insurers must formulate a clear policy on how they will discharge their wardship responsibilities.
   • Implementation: This policy should be publicly disclosed and include how the insurer monitors and engages with investee companies on matters such as strategy, performance, risk, capital structure, and corporate governance.
2. Managing Conflicts of Interest:
   • Requirement: Insurers should have a robust policy to manage conflicts of interest that may arise during their stewardship activities.
   • Implementation: This policy must be disclosed publicly and include measures to mitigate and manage conflicts to ensure decisions are made in the best interests of policyholders and beneficiaries.
3. Monitoring Investee Companies:
   • Requirement: Insurers should regularly monitor their investee companies to ensure they are managed and governed in a way that protects and enhances shareholder value.
   • Implementation: This includes reviewing financial and non-financial performance, attending general meetings, and maintaining regular dialogue with the company’s board and management.
4. Active Intervention:
   • Requirement: When necessary, insurers should actively intervene in the management of investee companies to protect their investment.
   • Implementation: This can involve collaborative engagement with other institutional investors, escalating concerns to the company’s board, or even voting against management proposals at general meetings.
5. Collaboration with Other Institutional Investors:
   • Requirement: Insurers should be willing to collaborate with other institutional investors to enhance the effectiveness of their engagement with investee companies.
   • Implementation: Collaborative efforts can include sharing insights, co-filing shareholder resolutions, or participating in collective meetings with company management.
6. Voting and Disclosure of Voting Activity:
   • Requirement: Insurers must have a clear policy on voting and disclose their voting activities.
   • Implementation: This policy should detail the criteria for deciding how to vote, and insurers should publicly disclose their voting records and the rationale for significant votes, particularly where they have voted against management.
7. Reporting:
   • Requirement: Insurers must report periodically on how they have discharged their stewardship responsibilities.
   • Implementation: These reports should be accessible to policyholders and other stakeholders, detailing the engagement activities, outcomes, and the overall impact on the investee companies.

Objectives of the Stewardship Code

• Promote Good Corporate Governance: By engaging with investee companies, insurers help to promote better corporate governance practices.
• Protect and Enhance Long-term Value: Ensuring that companies are managed in a way that enhances long-term shareholder value benefits policyholders and other stakeholders.
• Increase Transparency: Public disclosure of stewardship policies and activities increases transparency and builds trust with policyholders and the public.
• Encourage Responsible Investment: Encourages insurers to act as responsible investors, considering environmental, social, and governance (ESG) factors in their investment decisions.

Implementation and Compliance

• Adoption: All insurers operating in India are required to adopt the Stewardship Code and integrate its principles into their business practices.
• Review and Updates: Insurers should regularly review and update their stewardship policies and practices to reflect changes in regulatory requirements and industry best practices.
• Oversight: The IRDAI oversees compliance with the Stewardship Code, and insurers must submit periodic reports on their stewardship activities to the regulator.

In conclusion, the Stewardship Code for Insurers in India is a comprehensive framework designed to ensure that insurers, as significant institutional investors, play an active role in promoting good corporate governance and long-term value creation in their investee companies. By adhering to these principles, insurers contribute to a more stable and sustainable financial market.