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Guidance on conducting insurance business in terms of section 5 of the Insurance Act

09 May 2019 Claudia Eisenberg Jackson, Norton Rose Fulbright

Posted in Insurance Section 5(1) of the Insurance Act 2017 prohibits any person from conducting insurance (including reinsurance) business in South Africa unless licensed under the Act. Under section 5(2), a foreign re/insurer will be regarded as conducting insurance business in South Africa if that foreign re/insurer, or another person on its behalf, directly acts in South in respect of the foreign insurance business.

The wording of section 5(2) is wide and includes intermediary services performed on behalf of the foreign re/insurer.

In April 2019, the Prudential Authority (PA) and Financial Sector Conduct Authority (FSCA) issued guidance on the application of section 5(1) and (2). The guidance is issued under section 141 of the Financial Sector Regulation Act 2017. The guidance is for information and is not binding; but it will help to understand the authorities’ attitude to enforcement of the Act.

The guidance confirms:

  • Reverse solicitation (when a South African policyholder/insured seeks insurance from the foreign re/insurer) is permitted and does not amount to the foreign re/insurer conducting business in South Africa. The foreign re/insurer must have no presence in South Africa, and all financial services relating to the insurance policy must be dealt with offshore.
  • A foreign re/insurer may not directly contact policyholders or potential policyholders or otherwise solicit business in South Africa.
  • A foreign re/insurer may not indirectly conduct business in South Africa through agents, including intermediaries. The test is one of agency: is the person acting in South Africa on behalf of the foreign re/insurer when soliciting or placing business.

Attachment 1 to the guidance provides useful examples of direct and indirect conduct which will be regarded as conducting business in South Africa.

The guidance seeks to expand the scope of the deeming provision in section 5 so that a foreign re/insurer will be regarded as conducting business in South Africa if it ‘in any way… influenced’ the placing of business with it. This is overly broad, and goes beyond the test of agency referred to in section 5.

The PA or FSCA will engage with the foreign re/insurer in the first instance in regard to a suspected contravention of section 5. If not resolved, the authorities may pursue the matter further with the relevant foreign regulator or against relevant persons located in South Africa.

First published by: Financial Institutions Legal Snapshot

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