Insurance providers urged not to underestimate impending solvency II regulations

Though there has been definite movement by select local insurance providers during the first quarter of 2011 to prepare for impending Solvency II regulations, as well as the Solvency
Assessment & Management (SAM) program, much more still needs to be done in order for the industry to make the January 2014 implementation deadline.

This is according to Mashudu Mamthuba, Senior Manager: Planning and Strategy at Lion of Africa Insurance, who says that the majority of South African insurers should by now already have made significant progress toward identifying and planning for the required business changes. "Insurance companies cannot afford to be complacent when working towards the implementation deadline, which will position our insurance sector in line with international regulation."

Mamathuba explains that in order to keep abreast of international standards, local stakeholders will adopt Europe?s Solvency II model within the current regulatory framework via the establishment of the Solvency Assessment & Management (SAM) program. Furthermore, the
Financial Services Board (FSB) says SAM will ensure that regulation of the South African insurance sector remains in line with emerging international standards.

According to Mamathuba, select audit firms have already started offering training and assistance to guide insurers in setting up their SAM programme offices."Importantly, individual insurers will now have to determine how they allocate resources to the complex task. This means insurers will have to make the call whether to appoint staff full-time to the process, or to tackle the project part-time within their existing roles."

However, he warns insurers that without effective program design and continuous management, it will be impossible for insurers to meet the regulatory requirements.

Mamathuba advises that the first step in preparation for SAM is to conduct a gap analysis to determine what a company must do to transition from its current framework to SAM. Following this, key individuals or teams should be appointed to manage the process of the SAM implementation. "It helps to have a 'big picture' view. You cannot implement SAM without considering the impact of IFRS4 Phase II, King III and various other regulatory changes."

According to Mamathuba, a useful tool that will develop as SAM unfolds is something referred to as the Own Risk and Solvency Assessment (ORSA)."This process requires insurers to conduct a type of self-assessment of their abilities under the key elements of risk and
value management; including risk appetite, risk assessment, capital management and business strategy. The idea is for companies to develop 'fit for purpose' risk and capital oversight to tie in with regulatory requirements."

Mamathuba explains that there are three main pillars under SAM; a quantitative capital requirement - which includes both a Solvency Capital Requirement (SCR) and a Minimum Capital Requirement (MCR); a qualitative supervisory review with effective risk management and an internal audit, as well as proper transparency and disclosure.

"The adoption by both short and long-term local insurance providers of the new solvency regulations is vital to the evolution of South Africa's insurance, positioning local players on a level playing field with their international counterparts," concludes Mamathuba.