OVERVIEW OF THE GENERAL LEGISLATIVE ENVIRONMENT · framework for insurers pending the enactment &...

OVERVIEW OF THE GENERAL LEGISLATIVE ENVIRONMENT

3RD PARTY CLIENT WORKSHOP

DATE: 28 NOVEMBER 2018

PRESENTER: MAXWELL SIBANDA (CRO)

INDEX

INTRODUCTION AND BACKGROUND

TRANSITIONAL ARRANGEMENTS ( ST & LT ACTS)

OVERVIEW: FINANCIAL SECTOR REGULATION ACT

OVERVIEW: INSURANCE REGULATIONS

OVERVIEW: REGULATORY INSTRUMENTS

OTHER NOTABLE CONSIDERATIONS & CONCLUSION

SLIDE NO: 2

OVERVIEW: INSURANCE ACT

INTRODUCTION & BACKGROUND

TRANSITION: OLD TO NEW REGULATORY REGIME

SLIDE NO: 4

PRU

DEN

TIAL

REG

ULA

TIO

N (P

. AU

THO

RIT

Y)

COFI BILL

PPR FAIS REGULATIONS

MAR

KET

CO

ND

UC

T R

EGU

LATI

ON

(FSC

A)

TCF

RDR

FINANCIAL SECTOR REGULATION (FSR) ACT

INSURANCE ACT

SHORT-TERM INSURANCE ACT LONG -TERM INSURANCE ACT

REGULATIONS (SHORT-TERM INSURANCE ACT) REGULATIONS (LONG-TERM INSURANCE ACT)

INSURANCE INDUSTRY REGULATION (F INANCI AL SERVICES BO ARD)

END STATE: NEW REGULATORY REGIME

SLIDE NO: 5

FINANCIAL SECTOR REGULATION ACT

INSURANCE ACT

PR

UD

EN

TIA

L R

EG

UL

AT

ION

COFI ACT

REGULATORY INSTRUMENTS

(INCLUDING: PRUDENTIAL STANDARDS,

CONDUCT STANDARDS & JOINT STANDARDS)

GUIDANCE NOTES

INTERPRETATION RULINGS

MA

RK

ET C

ON

DU

CT

REG

ULA

TIO

N

TRANSITIONAL ARRANGEMENTS (ST & LT ACTS)

PA & FSCA: JOINT COMMUNICATION 1 OF 2018

SLIDE NO: 7

Remaining sections of LTI Act & STI Act provide conduct of business legal framework for insurers pending the enactment & implementation of COFI Act.

In terms of above, post 1 July 2018, certain ST & LT insurance instruments: - remain in force; - withdrawn / lapse on the effective date of the Insurance Act; and - are no longer relevant.

Status of instruments issued under (LT or ST Ins Acts), post 1 Jul 2018

Insurance Act repealed all prudential requirements under LTI Act and STI Act.

Directives, Board Notices, Insurance Notices, Info Letters & Guidance Notes

OVERVIEW: FINANCIAL SECTOR REGULATION ACT

OVERVIEW FINANCIAL SECTOR REGULATION ACT

SLIDE NO: 9

Establish the Prudential Authority & the Financial Sector Conduct Authority.

Provide for co-ordination, co-operation, collaboration & consultation among Reserve Bank (SARB), Prudential Authority (PA), Financial Sector Conduct Authority (FSCA), National Credit Regulator (NCR), Financial Intelligence Centre (FIC) and other organs of state in relation to financial stability.

Provide for making regulatory instruments (including prudential standards, conduct standards and joint standards).

Make provision for licensing of financial institutions; to make comprehensive provision for powers to gather information and to conduct supervisory on-site inspections and investigations.

Provide for transformation of the financial sector.

OVERVIEW: INSURANCE ACT

OVERVIEW OF THE INSURANCE ACT

SLIDE NO: 11

Legal framework for prudential regulation & supervision of insurance business.

To promote the maintenance of a fair, safe and stable insurance market.

Introduce a legal framework for microinsurance to promote financial inclusion.

To replace certain parts of the LT or ST Ins Acts (w.r.t prudential matters).

Make provision for the broad-based transformation of the insurance sector.

Enhance the protection of policyholders as well as potential policyholders.

OVERVIEW: INSURANCE REGULATIONS

INSURANCE REGS. (TRANCHE 1): BINDER FEES

SLIDE NO: 13

NMI Binder fee caps (w.r.t advice), effective 1 January 2018 (see table below):

BINDER FUNCTIONS % FEE (MAXIMUM)

(a) Enter into, vary or renew Function (a) only 3.5%

(b) Determine policy wording Function (a) and one or more of functions (b) – (d) 5%

(c) Determine policy premiums

(d) Determine value of policy benefits One or more of functions (b) – (d) only 0%

(e) Claims settlement 4%

MAXIMUM PAYABLE (ONLY IF PERFORMING ALL 5 BINDER FUNCTIONS ABOVE) 9%

INSURANCE REGS. (TRANCHE 1): BINDER FEES

SLIDE NO: 14

Transitional provisions for complying with caps to NMI Binder Fees

TYPE OF AGREEMENT EFFECTIVE DATE

All new binders from 1 Jan 2018 Immediately

Existing agreements where binder fees were amended after 1 Jan 2017 1 July 2018

Agreements entered into between 1 Jan 2017 and 31 Dec 2017 1 July 2018

Agreements entered into before 1 Jan 2017 1 January 2019

SLIDE NO: 15

Amendments to Regulations i.t.o Tranche 2, came into effect 01 Oct 2018.

To align the Regulations (specifically terminology) with the Insurance Act.

The amendments in respect of premium collection (effective 01 July 2019).

Further strengthen policyholder protection by providing for more robust legislative requirements pertaining to collection of premiums by intermediaries, (e.g. the repeal of IGF cover requirement etc).

Amend Binder Regulations to provide for certain procurement and transformation requirements.

INSURANCE REGULATIONS (TRANCHE 2)

OVERVIEW: REGULATORY INSTRUMENTS

PRUDENTIAL STANDARDS (FINANCIAL SOUNDESS) 1 JUL 2018

SLIDE NO: 17

PRUDENTIAL STANDARD (FSI 1)

Framework for Financial Soundness of Insurers


Valuation of Assets Liabilities and Eligible Own Funds

PRUDENTIAL STANDARD (FSI 2.1)

Valuation of Assets and Liabilities Other than Technical Provisions


Valuation of Technical Provisions


Determination of Eligible Own Funds


Calculation of the MCR


Calculation of the SCR Using the Standardised Formula


Market Risk Capital Requirement


Life Underwriting Risk Capital Requirement


Non-life Underwriting Risk Capital Requirement


Operational Risk Capital Requirement


Calculation of the SCR Using a Full or Partial Internal Model


Liquidity Risk Assessment

PRUDENTIAL STANDARDS (GOVERNANCE & OPERATIONAL) 1 JUL 2018

SLIDE NO: 18

PRUDENTIAL STANDARD (GOI 1)

Framework for Governance and Operational Standards for insurers


Governance of Insurers

PRUDENTIAL STANDARD (GOI 2.1)

Corporate Culture


Risk Management and Internal Controls


Own Risk and Solvency Assessment (ORSA)


Business Continuity Management (BCM)


Reinsurance and Other Forms of Risk Transfer by Insurers


Fitness and Propriety


Outsourcing


Transfers of Business


Miscellaneous Regulatory Requirements

OTHER NOTABLE CONSIDERATIONS & CONCLUSION

INTERMEDIARIES GUARANTEE FACILITY (IGF)

SLIDE NO: 20

Joint Communication 3 (PA & FSCA): Deals with temporary continuation of insurance business of the Intermediaries Guarantee Facility (IGF).

Purpose – the IGF may continue to issue new policies in the coming months, but on condition that all such policies will terminate on 31 March 2019.

Insurers therefore expected to implement credit risk mitigation measures.

Requirement that an entity collecting premium must hold a guarantee policy (IGF) or bank guarantee – removed in terms of Insurance Act (01 July 2018).

Post 31 March 2019, insurers allowing intermediaries to collect premiums on their behalf, no longer able to rely on intermediaries obtaining IGF policies.

CONCLUDING REMARKS

SLIDE NO: 21

Significant changes to the insurance environment (in transition from the “old” to the “new” regulatory regime under Twin Peaks.

Separate presentations on: Regulatory framework for 3rd Party Cell Captives, Microinsurance, Policyholder Protection Rules & Prudential Standards (SAM).

Not all the requirements have been finalised by regulatory authorities (there are still debates on key issues i.e. cell captive regulatory framework).

Guardrisk actively participates in engaging regulatory authorities via industry forums as well as directly the PA & FSCA. Key developments will be shared with clients (through Portfolio Managers, Business Partners, Workshops etc).

Thank you

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