This Board Notice seeks to:
- give effect to the governance, risk management and internal control measures proposed in the Insurance Laws Amendment Bill, 2013 (“ILAB”), which was withdrawn by the Minister of Finance due to the Parliamentary schedule;
- take into account the public comments submitted to the National Treasury on the draft ILAB during 2012, and reflect key areas of agreement reached on changes to it; and
- give effect to international standards as set out in the Insurance Core Principles of the International Association of Insurance Supervisors (October 2013).
Therefore we reviewed BN 114 and compared its contents to ILAB. The findings from this review suggest that the governance and risk management framework proposed under BN 114 are largely similar to those proposed under ILAB, with some modifications, exclusions and inclusions.
Below is a high level review of the key differences we identified between the two documents.
- One of the main changes in BN 114 is that it does not contain separate sections for amendments to the Long-term Insurance Act, 1998 and Short-term Insurance Act, 1998. This is due to the Board Notice serving as a Schedule to these Acts whereas ILAB would have resulted in the Acts being amended.
- Following the point discussed above, all references to “this Act” contained in ILAB have now been changed to refer to “the Acts”.
- BN 114 refers to “managing executives” and not “senior management”. The former is defined in the Acts whereas the latter was defined in ILAB. There are small distinctions in the definitions which could result in changes in the individuals responsible for certain functions of the insurers.
- The definition of a “non-executive director” and an “independent director” have been changed under the Board Notice [per section 3.(1)] and are now based on the requirements for members of audit committees as set out in the Companies Act.
- Expansion and clarification of the risk management system, including additional items that the system must accomplish, further detail of what is to be included in the risk management strategy and examples of written policies required.
- Expansion of the detail to be provided in each of the component policies under the overall risk management policy.
Exclusions (“what's out”)
- Additional powers of the Registrar included in ILAB (including the ability to issue interpretation guidance; and request information from, or provide information to, a regulatory authority) have not been included in BN 114.
- The ILAB had a separate section (14D) on audit committees and, more specifically, their composition. The Board Notice does not include a section on the audit committee. Rather, where relevant, it refers to the audit committee requirements as set out in the Companies Act.
- The ILAB also had a separate section (14L) on Outsourcing. Outsourcing (and insourcing) is not provided for in the Board Notice, which states that “In respect of outsourcing, Directive 159.A.i continues to apply”.
- The control limitations which detailed the maximum equity/issued shares that one individual may hold without prior approval from the Registrar were amended from 25% to 15% in ILAB, but this has not been included in BN 114.
- The requirement that a long-term insurer should notify the policy holder of non-payment within seven days of the due date. This timeline of seven days has been excluded from BN 114.
- The separate section for Insurance Groups in ILAB (Part VIIA) has not been included in BN 114.
Inclusions (what’s new)
- Some key changes have been made to the composition of the board of directors under BN114. These are discussed further in the table below.
- BN114 includes the following sections, which were not previously included / detailed in the ILAB:
- Responsibilities for Board Committees [section 6(2)]
- Requirements for Risk and Remuneration Committees [section 7]
- Functions to be performed by the Risk Committee [section 8]
- Functions to be performed by the Remuneration Committee [section 9]
- Additional distinct component policies within the overall risk management policy are now included, and were not included in ILAB
- The following control functions are now described in detail in BN114
- Risk management function [section 26];
- Compliance function [section 27];
- Internal audit function [section 28]; and
- Actuarial function [section 29]