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Corporate Governance Committee Mandate

This mandate provides terms of reference for the Corporate Governance Committee of each of Economical Mutual Insurance Company (“Economical”), Federation Insurance Company of Canada, The Missisquoi Insurance Company, Perth Insurance Company and Waterloo Insurance Company (collectively the “Companies” and individually the “Company”).

Purpose

The Company’s Board of Directors (the “Board”) has established the Corporate Governance Committee (the “Committee”) to assist the Board in fulfilling its oversight responsibilities by:

  • developing and maintaining a healthy and effective corporate governance framework and culture;
  • reviewing the overall size, composition, independence and effectiveness of the Board;
  • developing processes for evaluating the required skills and experience of potential directors;
  • providing a framework for evaluating the performance of the Board, the Committees and the individual members of the Board, including the Chair;
  • recommending to the Board candidates for election and/or re-election to the Board and its committees;
  • overseeing director orientation and continuing education;
  • performing the duties of a conduct review committee as prescribed under the Insurance Companies Act (Canada) (the “Act”);
  • overseeing systems for the identification, evaluation and approval of related party transactions, including compliance with Part XI of the Act;
  • overseeing, maintaining and monitoring compliance with the Company’s Code of Business Conduct;
  • approving public disclosures and regulatory filings in relation to the Company’s corporate governance practices;
  • in consultation with the Human Resources and Compensation Committee, periodically reviewing and making recommendations to the Board regarding the adequacy and form of directors’ compensation; and
  • performing such additional duties as may be delegated to the Committee by the Board from time to time.

Members and Conduct

The Board shall appoint a minimum of three directors to be members of the Committee. The members of the Committee will be selected by the Board on the recommendation of this Committee. Each year, the Board will appoint one member of the Committee to serve as chair of the Committee. If, in any year, the Board does not appoint a chair, the incumbent chair will continue in office until a successor is appointed.

All of the members of the Committee will meet the criteria for independence referred to in the Board mandate, and at least a majority must be residents of Canada (so long as this is required under applicable law). In addition, a majority of Committee members shall have an understanding of corporate governance issues and methodologies or shall commit to understanding such issues and methodologies in a timely manner. Members have a duty to immediately notify the chair of the Board if he or she ceases to meet the qualifications for Committee membership for any reason.

Any member may be removed and replaced at any time by the Board, and will automatically cease to be a member as soon as the member ceases to meet the qualifications set out above. The Board will fill vacancies on the Committee by appointment from among qualified members of the Board on the recommendation of the remaining members of this Committee. If a vacancy exists on the Committee, the remaining members will exercise all of its powers so long as there is a quorum.

The Committee shall conduct itself in accordance with the Committee Operating Procedures prescribed by the Board from time to time. This mandate does not impose on any Committee member a standard of care or diligence that is in any way more onerous or extensive than the standard of care applicable to the Company’s directors generally.

Specific Responsibilities

The Committee is responsible for performing the duties set out below as well as any other duties delegated to the Committee by the Board from time to time.

Approach to corporate governance

The Committee will review the Company’s overall approach to corporate governance and make appropriate recommendations to the Board. Among other things, the Committee will:

  • annually review the adequacy of the Company’s corporate governance practices and principles and recommend to the Board any changes or new practices the Committee considers appropriate;
  • consider and recommend to the Board any new committees the Committee believes are appropriate, and develop mandates for each such committee;
  • monitor regulatory developments and best practices relating to corporate governance issues, with a view to recommending to the Board any changes the Committee believes are appropriate;
  • oversee the preparation of any public disclosure about the Company’s corporate governance practices, including any report to be included in the proxy circular for its annual meeting; and
  • review the Company’s Code of Business Conduct annually, make recommendations to the Board as appropriate, and oversee compliance, complaint resolution and investigations in relation to such code except to the extent delegated by the Board to any other committee.

Nominating directors

The Committee is responsible for the following matters:

  • Periodically examining the size of the Board and recommending to the Board a size that facilitates effective decision making;
  • Identifying qualified individuals and recommending to the Board:
    • director nominees for election at the next annual meeting of members and for appointment in relation to any vacancies on the Board;
    • candidates for Board chair, and, where appropriate, the removal of the Board chair for any reason the Committee sees fit;
    • those directors it considers qualified for appointment to each Board committee, including in relation to any vacancy on the committee; and
    • those Board committee members it considers qualified to chair those committees.
  • In making its candidacy recommendations, the Committee will, after conducting the reviews, examinations and inquiries it believes are appropriate, consider:
    • the competencies and skills that the Board considers to be necessary for the Board as a whole, its chair and its committees to possess, in light of the opportunities and risks facing the Company, its strategy and its succession planning needs;
    • the competencies and skills that the Board considers each existing director to possess and that the Committee considers any new nominee to possess;
    • the ability of potential nominees to devote sufficient time and resources to his or her duties as a Board member;
    • the independence requirements applicable to the Board and each committee;
    • the requirements of committees for distinctive or specialized expertise; and
    • the most recent performance evaluation of the Board, Board committees and individual directors.

Evaluation of the Board, committees of the Board and individual directors

The Committee is responsible for the following matters:

  • Reviewing at least once every three years:
    • the mandates applicable to the Board and each Board committee, ensuring that each Board committee annually reviews its respective mandate; and
    • the position descriptions for the Board chair, the committee chairs and the directors.
  • Recommending for Board approval any substantive changes arising out of the foregoing reviews;
  • Assessing and reporting to the Board annually in relation to director independence in accordance with the standards described in the Board mandate and any applicable regulatory requirements, including the recommended approach to any required remediation; and
  • Developing and recommending to the Board a process for assessing:
    • the contributions and effectiveness of individual directors;
    • the performance of the Board chair in that role;
    • the performance and effectiveness of the Board as a whole and of each Board committee, including an evaluation as to whether the Board is operating effectively and has appropriate composition and procedures to allow it to function independently from management; and
    • whether the current directors individually or collectively possess the requisite competencies, skills and qualifications, including the recommended approach to any required remediation.
  • Periodically conducting the foregoing assessments and reporting thereon to the Board, occasionally with the assistance of independent external advisors in accordance with a scope and frequency established by the Board;
  • Through the Committee’s chair and/or the Board chair, meeting annually and privately with each director for the purpose of providing evaluation feedback and discussing any aspects of the Company’s corporate governance (including the effectiveness of the Board or any committee of the Board) which the chairs or such director may wish to address, and reporting to the Committee with respect to the results of such meetings;
  • Following consultation with the Board chair, recommending to the Board the removal of a director from a Board committee (other than the Committee), if in the Committee's view, or under applicable laws, rules or policies such director is no longer competent or is disqualified from serving as a member of a Board committee or the Board.

Director orientation and continuing education

The Committee will develop, review and evaluate periodically the Board's processes for orientation and continuing education of directors, which shall include an appropriate combination of written materials for self-study, formal presentations, informal meetings and mentorship.

Legal and compliance matters

The Committee is responsible for the following matters:

  • Reviewing and recommending to the Board for its approval the annual Conduct Review Report for delivery to the Office of the Superintendent of Financial Institutions.
  • Periodically reviewing and evaluating the effectiveness of established procedures to identify material related party transactions and compliance with Part XI of the Act.
  • Reviewing the Company's letters patent and by-laws periodically with a view to identifying potential amendments, and recommending those amendments to the Board for its consideration.

Other responsibilities

The Committee is responsible for the following matters:

  • In consultation with the Human Resources and Compensation Committee, periodically reviewing and making recommendations to the Board regarding the adequacy and form of directors’ compensation;
  • Approving and recommending to the Board a corporate social responsibility policy and for monitoring the Company’s activities in that regard;
  • In conjunction with the Board chair, periodically reviewing and assessing the succession and emergency preparedness planning process for the Board chair position, and recommending this process to the Board for approval;
  • Periodically reviewing and assessing the adequacy of the Company’s directors’ and officers’ indemnification and insurance coverage, and recommending to the Board any significant changes thereto;
  • Establishing the terms and conditions, and approving in each instance, the participation of the president and chief executive officer on the board of directors of any other corporation or organization (whether or not for-profit), not directly related to the interests of the Company (an “Outside Board”), and receiving periodic reports from the president and chief executive officer regarding approvals granted by him/her in relation to the service of officers of the Company on for-profit Outside Boards;
  • Reviewing through the president and chief executive officer any management concerns about its relationship with the Board and reporting to the Board its findings therewith;
  • Provide oversight over the corporate policies delegated to the Committee by the Board from time to time.

Reporting

The Committee will regularly report to the Board on, among other matters:

  • the Company’s corporate governance practices and principles, including related public disclosure;
  • candidates for election and/or re-election to the Board and its committees, and related selection criteria;
  • its evaluation of the Board, the Board’s committees and the individual members of the Board;
  • compliance with the Code of Business Conduct;
  • director compensation; and
  • all other significant matters it has addressed and with respect to such other matters that are properly within its responsibilities.

Assessment

At least annually, the Corporate Governance Committee will review the effectiveness of the Committee in fulfilling the responsibilities and duties set out in this Mandate, in accordance with the evaluation process approved by the Board.

The Committee will review and assess the adequacy of this mandate at least once every three years and submit it to the Board for approval with such further amendments as it deems necessary and appropriate. Minor technical amendments to this mandate, may be made by the corporate secretary of the Company, who will report any such amendments to the Board at its next regular meeting.

Access to Records and Outside Advisors; Reliance on Experts

In carrying out its responsibilities, the Committee:

  • is empowered to investigate any matter with full and unrestricted access to all books, records, facilities and personnel of the Company and its subsidiaries;
  • may retain, remove, instruct and pay any outside advisor, including independent counsel, at the expense of the Company without Board approval at any time;
  • has the sole authority to determine such advisor’s fees and other retention terms;
  • may communicate directly and privately with the external auditor and any other advisor engaged by the Committee at any time; and
  • shall be entitled to rely in good faith upon:
    • a report or advice of an officer or employee of the Company, where it is reasonable in the circumstances to rely on the report or advice, and
    • a report of an actuary, lawyer, accountant, engineer, appraiser or other person whose profession lends credibility to a statement made by such a person.

No Rights Created

This mandate is a statement of broad policies and is intended as a component of the flexible governance framework within which the Board, assisted by its committees, directs the affairs of the Company. While it should be interpreted in the context of all applicable laws, regulations and listing requirements (if any), as well as in the context of the Company’s letters patent and bylaws, it is not intended to establish any legally binding obligations.