Additional regulatory requirements regarding supervisory, reporting and governance frameworks for insurance groups were expected to be enacted by means of what was called the Insurance Laws Amendment Bill (referred to as ILAB) during 2014.
In April 2014 Finance Minister Pravin Gordhan asked that the Insurance Laws Amendment Bill (ILAB) be withdrawn. Shortly thereafter the Financial Services Board (FSB) announced that the requirements that were going to be included in the ILAB, will now be introduced through alternative means as follows:
According to the ILAB requirements, the insurance group supervisory framework will apply to an “insurance group” where insurance groups are defined as groups including two or more entities of which at least one is an insurer and one has significant influence on the insurer. The significance of influence is determined based on participation, influence and / or other contractual obligations, interconnectedness, risk exposure, risk concentration, risk transfer and / or intra-group transactions.
Insurance groups will cover all relevant entities (including holding companies, non-regulated entities and special purpose vehicles). This means that group-wide regulatory requirements may now extend to companies elsewhere that previously may not have been subject to such regulations. The scope will also extend to risk concentrations and intra-group transactions.
The following items are expected to be required in terms of ILAB:
Group supervision under SAM will be much wider than just considering group solvency. It will be a regulatory and supervisory tool aimed at helping supervisors assess the risk that a (re)insurer’s membership of a group brings to the policyholders of that company. Group solvency assessments will be an important part of this, but of equal, if not greater, importance are the group’s governance and risk management processes. The following aspects of group supervision will need to be considered:
With the impending group supervision legislation, groups need to consider the structural, operational and compliance implications of this legislation as part of their growth strategies (for example into Africa). Some key considerations are:
Successsful groups will be those that are forward-looking and embrace the group risk principles that the regulation is introducing. The key to success is addressing the challenges presented through an integrated group supervision strategy that aligns to the broader business objectives.