Insurance Companies must prepare for interim solvency requirements
The implementation date for the Financial Services Board’s (FSB) Solvency Assessment and Management (SAM) to strengthen governance and risk management practices of insurance companies and apply capital requirements commensurate with their risk profile may
According to Lance Moroney, Business Unit Head of Non-Life at Aon Hewitt South Africa, interim requirements are being introduced prior to the full implementation of SAM in order to start a phased-in approach to ensure that insurers can gradually prepare themselves for the forthcoming solvency requirements. “These interim measures will enable insurance companies to better understand governance requirements and risk management practices within their own businesses to ensure they are fully prepared to deal with the ultimate requirements of SAM.”
He says that while compliance with the interim requirements is critical for all insurers, smaller insurers may face a particular challenge in aligning their businesses with SAM. “Bigger insurers often have sufficient resources to formulate risk policies. For the smaller companies, however; they may face a bigger challenge in meeting these requirements due to limited history in formulating risk policy and instilling a strong risk management culture.”
“The interim requirements are primarily concerned with aspects such as governance of the company, including the responsibilities of the board, the key functions of the company and any committees that need to be in place, as well as facilitating an understanding of risk including the formulation of policies around all risk areas.”
Moroney says all the details of SAM and the interim requirements that will be enforced at the end of 2012 have already been released in a discussion document. “The FSB has also been conducting a number of industry workshops, so it is crucial for all insurance companies, especially the smaller players that have thus far not participated in the consultations, to familiarise themselves with the discussion document to ensure that they not only understand what the changes mean but are also prepared to incorporate these into their business models.”
“One of the challenges for smaller insurance companies is the expense of resources that needs to be allocated in order to implement changes required by SAM. However, there is an aspect of proportionality that applies to the requirements of the regime, appropriate to the risks associated with each individual business, so larger companies by their nature are likely to require a more complex solution than their smaller counterparts.”
“SAM is a huge undertaking for both the regulator and the insurance industry and while it will result in companies gaining a better understanding of their own risk profile and capital requirements, it is vital that all insurance companies take the necessary steps now to ascertain how this will impact on their own businesses and develop an effective project plan to ensure they are able to meet all interim requirements by the end of 2012,” concludes Moroney.
