Republic of the Philippines

DEPARTMENT OF FINANCE
Ito\ us lioulknaid Curia Pahl() ()camp, Si Street
M11,uuld 101)1

DEPARTMENT ORDER NO. 054

15 April 2015
SUBJECT :

2015

ADOPTION OF GUIDELINES PRESCRIBING THE FIT AND

PROPER RULE FOR DIRECTORS OF INSURANCE COMPANIES
AND PUBLIC 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 insuring
public;
WHEREAS, the IC is attached to the Department of Finance ("DOF") for
purposes of policy and program coordination, in accordance with the Administrative
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 and/or licenses or permits issued by the Government and is mandated to
foster good governance and enhance investor protection;
WHEREAS, the administrative supervision over the SEC was given to the DOF.
pursuant to Executive Order ("EC") No. 37, s.2011, primarily in view of the need to
ensure effective financial sector 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 private sector,
considering the sizeable role of the latter in the country's economic growth and
development;
WHEREAS, it is desirable to adopt a system for recognition of exemplary public
companies and insurance companies ("covered entities") employing the highest
standards in corporate governance, with particular emphasis on ensuring that the
directors of said covered entities are fit 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 foregoing premises, the following
instructions are hereby issued:
Section 1. Ranking System. IC and SEC shall promulgate guidelines and shall
implement a system for ranking insurance companies and public companies,
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respectively, in terms of company practices employed in ensuring that directors are fit
and proper to hold such position. These guidelines shall include criteria on integrity,
experience, education, training and competence, and shall be consistent with the
standards herein set forth.
The implementation of the ranking system and the standards set forth in this
Department Order shall be without prejudice to, and shall be consistent with, all
applicable laws and existing rules and regulations of the IC and the SEC.
Section 2. Annual Ranking and Recognition. IC and SEC shall, on an annual
basis, rank covered entities in accordance with the ranking system respectively
promulgated pursuant to Section 1 hereof. The annual ranking generated by the IC and
SEC shall be used as basis for recognizing insurance companies and public companies
employing the highest standards in ensuring that their directors are fit and proper to
hold such position.
Section 3. Definition of Terms
The term "insurance company" shall include all partnerships, associations,
cooperatives or corporations, duly authorized by the IC to transact insurance business
in the Philippines, excepting mutual benefit associations. For purposes of this
Department Order, the term shall also include professional reinsurers, or entities that
transact solely and exclusively reinsurance business in the Philippines.
The term "public company" shall refer to a corporation duly registered with the
SEC having the following characteristics:
a. Has a class of equity securities listed on an Exchange; or
b. Has assets in excess of Fifty Million Pesos (P50,000,000.00) and having
two hundred (200) or more holders, at least two hundred (200) of which
are holding at least one hundred (100) shares of a class of the
corporation's equity securities.
Section 4. Ideal Minimum Qualifications of a Director. A director shall ideally have
the following minimum qualifications:
a. At least twenty-five (25) years of age at the time of his election or
appointment;
b. At least a college graduate or has at least five (5) years experience in
business;
c. Has attended a special seminar on corporate governance for board of
directors conducted or accredited by SEC or IC as may be applicable; and
d. Must be fit and proper for the position of a director of the covered entity,
taking into account the following factors: integrity/probity, competence,
relevant education/training (e.g., financial literacy), physical and mental
fitness, diligence, and knowledge/experience.
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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 committee 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 shareholder", i.e., does not own/hold shares of stock
sufficient to elect one (1) seat in the board of directors of either the
covered entity, its subsidiaries, affiliates, or any related companies of its
majority corporate shareholders;
e. Is not a relative within the fourth degree of consanguinity or affinity,
legitimate 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 representative of any director or substantial
shareholder of the covered entity or any of its related companies;
g. Is not 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 related
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 Directors. At least twenty
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
minimum proportion, 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 independent director shall ideally serve for five (5)
consecutive years. After completion of five (5) consecutive years, the covered entity
shall ideally consider him ineligible for re-election,. which ineligibility may be lifted after
the lapse of a "cooling period" of two (2) years: Provided, that during such period, he
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has not engaged in any activity that, under existing rules, disqualifies a person from
being elected as independent director in the same entity. The former independent
director who has undergone the aforementioned cooling period may 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 barred from being elected in the same
covered entity.
Section 8. Ideal Remuneration. A fixed amount of remuneration shall ideally be
given to independent directors at the level sufficient to attract and retain the quality of
directors to run the company successfully. Entitlement to such fixed amount shall ideally
be based on the results of an independent ratings mechanism which shall be
established for purposes of evaluating the performance of independent directors. Stock
options and performance benefits of any kind shall ideally not be included in their
remuneration package.
Section 9.
Separability Clause. If any part of this Department Order is
declared by the courts as unconstitutional or contrary to existing laws, the other parts
shall remain in full force and effect.
Section 10. Effectivity. This Order shall take effect immediately and all
concerned shall be guided accordingly.

CES R
I IMA
Secretary

025873

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Directors of Insurance Companies and Public Companies
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