BOARD OF DIRECTORS MANDATE
This mandate provides the terms of reference for the Boards of Directors (each a “Board”) of each of Economical Mutual Insurance Company (“Economical”), Sonnet Insurance Company, The Missisquoi Insurance Company, Perth Insurance Company, Waterloo Insurance Company and Petline Insurance Company (collectively the “Companies” and individually the “Company”).
Primary Responsibilities of the Board
The Board is responsible for the stewardship of the Company and for supervising the management of the business and affairs of the Company. In doing so, each director must act honestly and in good faith with a view to the best interests of the Company, and exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.
The Board must stay informed of the Company’s affairs, be actively engaged in the development of the Company’s strategic direction and oversee how management executes direction. In doing so, the Board is responsible for appointing a competent executive management team and for monitoring the management of the business of the Company by that team.
This mandate sets out the primary responsibilities of the Board, but shall in no way be construed as limiting the matters that the Board may consider in the course of discharging its duties or as limiting the exercise of a director’s independent judgment.
The Board will carry out its mandate either directly or through the following standing committees of the Board: Audit Committee, Human Resources and Compensation Committee, Investment Committee, Corporate Governance Committee and Risk Review Committee. Subject to applicable law, the Board may establish other Board committees on a temporary or permanent basis or merge or dispose of any Board committee.
Each such committee will be governed by a written mandate outlining the committee’s purpose and responsibilities, committee membership criteria, structure and operations (including any authority of the committee to delegate powers to individual members, subcommittees and management), and the manner in which the committee will report to the Board.
- Integrity of management
The Board will satisfy itself that management is acting in the best interests of the Company, upholding the highest standards of ethical behaviour, and creating a culture of integrity throughout the Company. The Board will satisfy itself that management is striving to enhance the financial value and the long-term sustainability of the Company.
The Board will satisfy itself as to the integrity of the president and chief executive officer, senior management and employees of the Company through monitoring compliance with the Company’s Code of Business Conduct (the “Code”) and its ethics reporting procedures. The Board will satisfy itself that the president and chief executive officer and senior management create and maintain a culture of integrity throughout the organization.
- Strategic planning and execution
The Board will:
- require the president and chief executive officer to develop and present to the Board the objectives and strategies which the president and chief executive officer proposes to pursue in managing the business and affairs of the Company, together with an implementation plan, which takes into account, among other things, the Company’s strengths and weaknesses, the opportunities for and threats to the Company’s business and the Company’s risk tolerance level established by the Board;
- assess the appropriateness of the Company’s objectives, whether the strategies are reasonably capable of being executed successfully, and whether its strategies, if successfully executed, are reasonably likely to achieve the stated objectives;
- monitor management’s implementation of the strategies and the Company’s progress toward achieving its objectives; and
- ensure that all significant corporate transactions are submitted for its approval.
- Principal risks and risk management systems
The Board will:
- review with management the principal business risks to the Company and gain and maintain reasonable assurance that appropriate procedures are implemented to identify, monitor, manage and mitigate those risks;
- gain and maintain reasonable assurance that effective systems are in place to monitor the integrity of the Company’s internal controls and management information systems;
- gain and maintain reasonable assurance that management processes are in place to address and comply with applicable laws and regulations, including applicable corporate, securities and regulatory requirements; and
- confirm and monitor that processes are in place to comply with the Company’s bylaws, Code of Conduct and ethics reporting program.
- Financial reporting, controls and public disclosure
The Board will gain reasonable assurance that the Company has a system in place for communicating to its members and, where appropriate, to the public, including processes for consistent, transparent and timely public disclosure. In doing so, the Board will:
- gain and maintain reasonable assurance that the Company maintains the communications systems to effectively communicate with its stakeholders and provide full, accurate and timely public disclosure where appropriate;
- gain and maintain reasonable assurance that the Company has information and reporting systems that are reasonably designed to provide timely accurate information sufficient to allow management and the Board to reach informed decisions;
- gain and maintain reasonable assurance as to the integrity, comprehensiveness and effectiveness of the Company’s internal control environment;
- nominate a firm of public accountants for appointment as the external auditor by the members of the Company and fix the compensation and engagement terms for the external auditor;
- when appropriate, pre-approve all non-audit services proposed to be provided to the Company or its subsidiary entities by the external auditor, or adopt specific policies and procedures for the engagement of such services;
- establish policies regarding the hiring of partners, employees and former partners and employees of the present and any former external auditor;
- appoint, direct and oversee the work of the Company’s internal audit function;
- review the Company’s financial statements, management’s discussion and analysis and related disclosures, including financial information extracted or derived from the Company’s financial statements, before such information is released to the Company’s members or the public;
- gain and maintain reasonable assurance that the Company complies with applicable laws, regulations, rules, policies and other regulatory requirements; and
- receive reports from the chair of the Board regarding the reasonableness of expenses incurred by the president and chief executive officer and receive reasonable assurance from the internal auditors that expenses of all senior executives conform to Company policy.
- Investment management
The Board will gain and maintain reasonable assurance:
- that the assets of the Company are invested in compliance with applicable law, including the Insurance Companies Act (Canada) (the “Act”);
- that the Company’s Investment Policy Statement (“IPS”) is prudent and aligns with the risk appetite established by the Board;
- as to the Company’s investment performance and compliance with the IPS;
- that the investment management and performance of the Company’s pension plans are appropriately monitored, including as to compliance with the Pension Plan Statement of Investment Policies and Procedures;
- as to the work of investment managers for the pension plans; and
- as to management’s assessment of the economic, capital markets and regulatory environments and the impact of these influences on the Company’s investment portfolios, strategies and operations.
The Board will:
- select and appoint a president and chief executive officer;
- establish a written position description for the president and chief executive officer, which reflects the Board’s delegation to the president and chief executive officer of powers and authority to manage the business and affairs of the Company and which delineates the president and chief executive officer’s responsibilities;
- approve the terms and conditions of the president and chief executive officer’s employment by the Company, including any changes to such terms and conditions;
- establish, maintain and implement a process for annually assessing the performance of the president and chief executive officer, taking into account the president and chief executive officer’s position description and the goals and objectives of the Company which have been approved by the Board and which the president and chief executive officer is responsible for meeting;
- be responsible for approving the compensation of the president and chief executive officer;
- receive the recommendation of the president and chief executive officer regarding the appointment of all other senior officers and other senior executives of the Company who head a business unit or significant corporate function or who are responsible for a corporate oversight function and, upon agreement, approve such appointments;
- review and approve the terms and conditions of each such senior officer’s and senior executive’s employment by the Company, including any material changes to such terms and conditions;
- review and approve all written employment contracts of such senior officers and senior executives;
- approve any termination of the president and chief executive officer;
- receive the recommendation of the president and chief executive officer concerning the designation of corporate officers and approve all such designations; and
- review and oversee the Company’s succession plans for senior management.
In addition, the Board will gain and maintain reasonable assurance regarding the adequacy and effectiveness of:
- the Company’s policies and practices to attract, develop and retain the human resources required by the Company to meet its objectives;
- the Company’s staff-level and executive compensation and incentive programs;
- the design, operation and governance of the Company’s benefit programs and pension plans;
- the Company’s policies and processes relating to the health and safety of the Company’s employees; and
- the Company’s policies and practices for monitoring and developing the skills of management and employees.
- Corporate governance
To support the Company’s high standard in governance practices, the Board will:
- establish an appropriate framework to allow the Board to function independently of management;
- appoint a Corporate Governance Committee composed of independent directors;
- clearly articulate what is expected from a director by developing position descriptions for directors, the Board chair, and the chair of each Board committee;
- establish limits of authority delegated to management;
- periodically review Board compensation and succession planning;
- review and assess the adequacy of the mandates of the Board and each Board committee and determine on an annual basis the degree to which those mandates have been fulfilled;
- promote among its directors a culture that embodies:
- acceptance of the Board’s accountability for the Company’s performance;
- the conviction that directors owe each other their best efforts in carrying out their duties and exercising their authority;
- the highest level of honesty and integrity in all actions of the Board, management and other senior managers and employees of the Company;
- open sharing of all relevant information among directors and among directors and management; and
- trust, respect and the acceptance and respect of differing opinions; and
- gain and maintain reasonable assurance regarding the adequacy and effectiveness of the Company’s corporate social responsibility initiatives.
The Board will determine Board member qualifications from time to time, taking into consideration the Company’s strategic direction, the competencies and skills the Board as a whole is expected to possess, and the competencies and skills possessed by existing directors with a view to optimizing the contribution that each director makes to the Board. The Board will only recruit Board members who have sufficient time and energy to devote to the task of being a director.
Each director must have an understanding of the Company’s principal operational and financial objectives, plans and strategies, and financial position and performance. Directors must have sufficient time to carry out their duties and not assume responsibilities that would materially interfere with, or be incompatible with, Board membership. Directors who experience a significant change in their personal circumstances, including a change in their principal occupation, are expected to advise the chair of the Corporate Governance Committee.
The Board will consist of directors who represent a range of personal experiences and backgrounds. At a minimum, each director candidate will have demonstrated: the highest personal and professional integrity; significant achievement in his or her field; experience and expertise relevant to the Company’s business; a reputation for sound and mature business judgment; the commitment to devote the necessary time and effort to conduct his or her duties effectively; and, where required, financial literacy. The Board will also ensure that at least a majority of its members are residents of Canada (so long as this is required under applicable law).
The Board will periodically review the size of the Board with a view to ensuring that it reflects applicable independence requirements, facilitates effective decision-making and complies with the Company’s constating documents.
- Term of office
The Board has not established a specific number of years a director may serve on the Board. Directors are generally elected for a term of three years and may stand for re-election at the end of each term upon approval by the Board based on the recommendation of the Corporate Governance Committee.
- Board chair
The directors will select from among their number a Board chair who will assume responsibility for providing leadership to enhance the effectiveness and independence of the Board. The Board chair also manages the affairs of the Board so as to assist the directors in carrying out their responsibilities with a view to enhancing the effectiveness of the Board as a whole. The Board chair will be an independent, non-management director. If in any year, the Board does not appoint a chair, the incumbent chair will continue in office until a successor is appointed.
- Board committees and selection
The Board shall approve mandates for each Board committee. The Board has delegated to the applicable committee those duties and responsibilities set out in each committee’s mandate. At least once every three years, each mandate shall be reviewed by the Corporate Governance Committee and any suggested amendments brought to the Board for consideration and approval.
The Corporate Governance Committee, in consultation with the Board chair as well as with the committee chairs in respect of the committees which they respectively chair, will annually recommend to the Board those directors it considers qualified for appointment, or reappointment as the case may be, to each Board committee. Committee assignments will be reviewed annually and rotation of assignments will be considered periodically, taking into account the special expertise and knowledge required for each position, applicable regulatory requirements, directors’ interests, abilities and prior committee service, and the directors’ available time to devote for committee service. When a vacancy occurs at any time in the membership of any Board committee, the Corporate Governance Committee will recommend to the Board, in consultation with the Board chair as well as with the chair of such committee, a director to fill such vacancy.
In addition, the Board will select, upon recommendation from the Corporate Governance Committee, from among committee members a chair for each committee who will assume responsibility for providing leadership to enhance the effectiveness and independence of his or her committee. Each such Committee chair will be an independent director, except in the case of the Investment Committee which may be chaired by a director who is also a member of management. If in any year, the Board does not appoint a chair for a particular committee, the incumbent chair of that committee will continue in office until a successor is appointed.
- Independent directors
The Board will ensure that director candidates presented for election by members or appointed by the Board to fill vacancies are such that, after giving effect to such election or appointment, the Board is composed of a majority of independent directors.
In addition, every member of the Human Resources and Compensation Committee, the Corporate Governance Committee, the Audit Committee and the Risk Review Committee shall be an independent director. Each member of the Audit Committee shall also be financially literate and shall have such accounting or financial management expertise as may be required to comply with applicable regulations as may be in effect from time to time.
For these purposes, director independence and financial literacy will be determined in relation to Canadian securities legislation and stock exchange rules which would apply to the Company as a publicly-traded company in Canada.
- Change of occupation, directorships or independence
Directors may serve on the boards of other companies so long as these commitments do not materially interfere and are compatible with their ability to fulfil their duties as a member of the Board. Directors must advise the Board chair in advance of accepting an invitation to serve on the board of any public company.
Each director shall promptly advise the Company’s corporate secretary in writing of each directorship held in relation to a public company in any jurisdiction, and any material change in their principal employment (including retirement from their principal employment). In addition, directors have an ongoing obligation to inform the Board (by advising the chair of the Corporate Governance Committee) of any changes in their circumstances or relationships that may affect the Board’s determination as to their independence.
- Conflicts of interest
A director’s business or personal relationships may occasionally give rise to a personal interest in a material business matter or relationship of the Company that conflicts, or appears to conflict, with the interests of the Company. In such circumstances, the issue should be raised with the Board chair. Appropriate steps will then be taken to determine whether an actual or apparent conflict exists, and in accordance with statutory requirements, determine whether it is necessary for the director to be excused from discussions on the issue.
In addition, each director must ensure that he or she is free from any interest and any business or other relationship which could, or could reasonably be perceived to, materially interfere with the director’s ability to act with a view to the best interests of the Company, other than interests and relationships arising from holding shares or insurance policies of the Company.
Board and Committee Meetings
The Board will meet as often as the Board considers appropriate to fulfil its duties. The chair of any committee may, at any time but with appropriate notice, call a meeting of the Board to consider any matter of concern to it.
The chair of the Board is responsible, in consultation with the president and chief executive officer and the corporate secretary, for establishing the agenda for each Board meeting. Each director may suggest items for inclusion on the agenda, and may raise at any Board meeting, subjects that are not on the meeting agenda.
Directors are expected to regularly attend Board meetings and committee meetings (as applicable) and to review in advance all materials for such meetings. The corporate secretary, his or her delegate or any other person requested by the Board or a committee shall act as secretary of Board meetings and committee meetings, as applicable, and shall record minutes for such meetings.
The Board shall be entitled to meet in private session or, at its option, with one or more members of management, other employees of the Company or its subsidiaries, and/or the Company’s appointed actuary, external auditor, internal auditor, counsel or other advisor(s). Unless the relevant chair determines otherwise, the agenda for each Board meeting (and each committee meeting to which members of management have been invited) will afford an opportunity for the independent directors to meet separately without management at its beginning and its end.
With limited exceptions, in camera sessions should not be used to conduct Board business and are generally not minuted. The chair of the Board should discuss relevant follow up items and other issues raised in camera with the appropriate member(s) of senior management without attribution as soon as practicable following the meeting.
Board committees shall conduct themselves in accordance with the Committee Operating Procedures set out in Appendix A.
Ethical Business Conduct
To encourage and promote a culture of ethical business conduct throughout the Company, the Board will establish, maintain and monitor compliance with the Code, which applies to all directors, officers and employees of the Company and addresses (at a minimum):
- conflicts of interest, including transactions and agreements in respect of which a director or member of management has a material interest;
- protection and proper use and exploitation of the Company’s assets and opportunities;
- confidentiality of private information relating to the business and affairs of the Company;
- fair and ethical dealing with the Company’s members, customers, suppliers, competitors and employees;
- compliance with applicable laws, rules and regulations; and
- reporting of any illegal or unethical behaviour or other breaches of the Code.
Waivers of compliance with the Code granted for the benefit of any director or member of management are to be granted only by the Board or an appropriately empowered committee of the Board.
Any director may, in consultation with the chair of the Corporate Governance Committee and at the Company’s expense, engage and terminate independent counsel or other advisors to provide advice to him or her with respect to the discharge of his or her duties as a director. In addition, each Board committee shall have the authority to engage and terminate independent counsel and such other outside advisors as the committee deems necessary to carry out its duties, and to set and (at the expense of the Company) pay the compensation for any independent counsel or other outside advisor engaged by the committee.
The Board will establish appropriate processes for the regular evaluation of:
- the effectiveness and performance of the Board, Board committees, the Board chair, Committee chairs and individual directors; and
- the adequacy and effectiveness of the Board and committee mandates, and the position descriptions applicable to the Board chair, Committee chairs and individual directors.
Orientation and Continuing Education
The corporate secretary will make arrangements for the orientation and education of new directors. New directors will be provided with written materials that outline the organization of the Board and its committees, the powers and duties of directors, the required standards of performance for directors, the Code (including its ethics reporting program) and this mandate.
The corporate secretary, in consultation with the president and chief executive officer, will arrange private meetings with members of senior management.
All directors shall be provided with continuing education opportunities to maintain and enhance directors’ skills and abilities as directors and to permit directors’ knowledge and understanding of the Company’s business and affairs to remain current. These may include, among other things, presentations from management, site visits and/or presentations from industry experts.
Measures for receiving feedback from stakeholders
The Company endeavours to keep its stakeholders informed of its progress through its public disclosure and regulatory filings. Directors and management meet with the Company’s mutual policyholders at the annual meeting and are available to respond to questions at that time.
Interested stakeholders are invited, after all significant public announcements including the release of interim and annual financial information, to discuss with designated spokespersons the impact of such information on the Company. Members may also contact the Board with any questions or concerns regarding the Company by contacting the corporate secretary at:
111 Westmount Road South, P.O. Box 2000
Waterloo, Ontario N2J 4S4
Tel: (519) 570-8200
Fax: (519) 570-8389
All such correspondence will, when received, be promptly reviewed by the corporate secretary, who will determine whether the correspondence should be forwarded immediately to the Board as a whole or any particular member or whether the correspondence should be presented to the Board at its next regular meeting. The corporate secretary will consult with the chair of the Board if there is a question concerning the need for immediate review by the Board or by any member of the Board.
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.
Committee operating procedures
The following operating procedures apply to each committee (each a “Committee”) of the Boards of Directors of Economical Mutual Insurance Company (“Economical”), Sonnet Insurance Company, The Missisquoi Insurance Company, Perth Insurance Company, Waterloo Insurance Company and Petline Insurance Company (collectively the “Companies” and individually the “Company”).
Frequency of meetings
The Committee shall meet as frequently as applicable regulatory requirements or circumstances dictate. Regular meetings of the Committee shall be held in accordance with a schedule prepared by the corporate secretary in consultation with the chair of the Board of Directors of the Company (the “Board Chair”) and the Committee chair. Additional meetings of the Committee may be called at any time by the Board Chair or by the Committee chair, upon the request of any Committee member (a “Member”). In addition, meetings of the Audit Committee and/or the Risk Review Committee may be called at any time by the Board Chair or by the Committee chair upon the request of the external auditor, the appointed actuary, the chief risk officer, or the chief financial officer.
Notice of meetings
Notice of the time and place of each meeting of the Committee shall be given to each Member not less than 48 hours before the time when the meeting is to be held. Notwithstanding the foregoing, in the event that the Board or the Committee fixes by resolution the time and place of one or more meetings of the Committee and a copy of such resolution is sent to each Member, no notice shall be required to be given to the Members for the meeting(s) whose times and places are so fixed.
Committee meeting agendas shall be prepared in consultation with the Committee chair, in all cases having regard to the matters required to be considered by the Committee under its mandate and/or pursuant to a request of the Board, one or more individual directors, the Committee, or, in the case of the Audit Committee and/or the Risk Review Committee, the external auditor, the appointed actuary, the chief risk officer, or the chief financial officer. Unless the Committee chair determines otherwise, the agenda for each meeting will also afford an opportunity for Members to meet separately, without management, at its beginning and its end.
Transaction of business
The powers of the Committee may be exercised at a meeting of the Committee at which a quorum is present or by resolution in writing signed by all of the Members who would have been entitled to vote on that resolution at a meeting of the Committee.
Meetings by telephone or electronic means
If all of the Members present at or participating in a meeting consent, then any Member may participate in such meeting by means of telephone, electronic or other communication facilities that permit all persons participating in the meeting to communicate simultaneously and instantaneously.
A majority of the Members shall constitute a quorum for the transaction of business at all meetings of the Committee, except where the Committee has four members, in which case a quorum shall be two members. Meetings of the Committee shall be constituted so that Canadian residency requirements of the Insurance Companies Act (Canada) are met.
Votes to govern
At all meetings of the Committee, any question shall be decided by a majority of the votes cast on the question and in the case of an equality of votes the matter shall be referred to the Board as a whole. Any question at a meeting of the Committee shall be decided by a show of hands unless a ballot is required or demanded.
Attendance by other directors
Any director of the Company, whether or not he or she is a Member, shall be entitled to be present at and to participate in all meetings of the Committee as a non-voting participant.
Secretary of meetings
Unless the Committee otherwise specifies, the corporate secretary shall act as secretary of all meetings of the Committee.
Chair of meetings
The Committee chair shall act as chair of all meetings of the Committee at which the Committee chair is present. In the absence of the Committee chair at any meeting of the Committee, the Members shall appoint a Member to serve as acting chair at the meeting.
Each Committee shall be provided with:
- a work plan listing the duties of the Committee,
- prompt updates to such work plan describing any proposed or actual changes to it, and
- at each Committee meeting, assurance as to compliance with the work plan.
Reports to the Board
The chair of each meeting of the Committee shall report on the matters considered at that meeting to the next-following regularly-scheduled meeting of the Board.
Co-ordination with executive management
Each Committee shall have a designated executive sponsor with whom the Committee chair shall work to develop meeting agendas and monitor the execution of the Committee’s work plan. The chair of each meeting of the Committee shall discuss relevant follow up items and other issues raised with the appropriate member(s) of senior management as soon as practicable following the meeting.
In camera sessions
The Committee shall be entitled to meet in private session or, at the option of the Committee, with one or more members of Management, other employees of the Company or its subsidiaries, and/or the Company’s appointed actuary, external auditor, internal auditor, counsel or other advisor(s). With limited exceptions, in camera sessions should not be used to conduct Committee business and are generally not minuted. The Committee chair should discuss relevant follow up items and other issues raised in camera with the appropriate member(s) of senior management without attribution as soon as practicable following the meeting.