Insurance companies feel red tape burden too
If you thought your financial services practice was the only business struggling with the regulatory and statutory burden then it’s time to think again. In their January 2010 Bulletin the South African Insurance Association (SAIA) published details of the Financial Services Board (FSB) proposal for a new Solvency Assessment and Management (SAM) regime for short- and long-term insurers.
According to SAIA: “Late in 2009 the FSB [said it intended to] implement a new regime relating to solvency assessment and management of short- and long-term insurers.” Although we usually cover issues relevant to financial intermediaries and their clients FAnews Online decided to take a quick look at what SAM means for the insurance industry.
The evolution of financial regulation
Our first point of call is to determine why the FSB is pursuing a new regime? The primary reason is to bring the South African insurance industry in line with its international peers. The FSB aims to promote the soundness of insurance companies through the effective application of international regulatory and supervisory standards.
The regime will be built around the principles contained in the European Solvency II Directive, adopted by the European Parliament on 22 April last year. The FSB says this directive will be adapted to suit South African circumstances where required. It will also be developed and implemented with due consideration to inputs from all industry stakeholders. The implementation date for EU countries is October 2012 and if everything goes to plan the new SAM regime will follow in South Africa soon after that date.
Three pillars of Solvency II
What will insurance companies have to grapple with? The European Solvency II standard is built on three pillars. The first addresses quantitative requirements, including the valuation of assets and liabilities and the setting of capital requirements. These requirements would be presented in a standardised model prescribed by the industry regulator – or by an insurer’s internal model subject to regulatory approval. The second pillar focuses on qualitative requirements, namely standards and guidance on governance, internal controls, risk management and supervisory processes. Pillar three deals with reporting and disclosure.
Committing to tough timelines
Local stakeholders have sunk a great deal of time and effort into creating standardised approaches for short-term insurers through the Financial Condition Reporting (FCR) project. Work on the revised capital regime for short-term insurers completed under the FCR banner will be incorporated in (and superseded by) the SAM project. Short-term insurers have been encouraged to continue working on their own internal models.
SAIA notes that the proposed implementation for the standardized approach for short-term insurers is January 2012. The target date for implementation of the internal model approach for short-term insurers, and both the standardized and internal model approach for long-term insurers is January 2014. The requirements of the SAM regime will become effective for all insurers from the date of implementation.
The recommendations arising from the SAM project should meet the requirements of a third country equivalence assessment under Solvency II. The FSB makes the following appeal in its correspondence: These are challenging timelines; successful achievement of the target dates will require a co-operative process and the active participation of experts from industry and other stakeholders. If you require additional information you can find it in the FSB Information Letter 08/2009.
Editor’s thoughts: The regulation of the financial services industry is not an easy task. The new SAM project will proceed on advice from 18 working sub-committees made up of FSB employees and staff nominated by insurers. Do you think the continued move to international standards is good for the local insurance industry? Add your comments below, or send them to [email protected]
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