Show us the money! Insurers get ready for new capital adequacy regime
02 April 2012 | Magazine Archives FAnews & FAnuus | Features / Profiles | FAnews
The elephant in the insurance industry regulatory space is the Solvency Assessment and Management (SAM) regulation. SAM is South Africa’s version of the European Solvency II regime and governs insurer capital adequacy, among other stipulations. We spoke to Karen Pepler, Financial Director at Sasria SOC Ltd to find out whether the organisation was on track for the 2014 SAM implementation.
FA NEWS: SAM will "go live” from January 2014. Is Sasria ready for the new regime?
Karen: We have a project plan in place and are working towards achieving the "go live” date of 1 January 2014. There are still some matters the Financial Services Board (FSB) needs to give guidance on which may impact our readiness.
FA NEWS: Was there a great deal of work involved in assessing Sasria’s compliance – and do you feel the industry had enough time to get to grips with the solvency requirements?
Karen: There was a great deal of work involved. Sasria undertook a gap analysis project which our service provider assisted with. I don’t think the industry was given enough time to get to grips with the solvency requirements and it placed a significant burden on the industry in terms of resources. We had to employ new staff members to ensure that we can deliver on all the regulation’s requirements.
FA NEWS: What does SAM mean in terms of the day-to-day running of Sasria? Are there any operational challenges that have to be met?
Karen: SAM will have a significant impact on the day-to-day running of Sasria. It will change the way we do business and the way we manage risk. These changes will be to the benefit of all our stakeholders.
FA NEWS: Most insurers identify equity market risk as their major "solvency” risk… Does this situation hold for Sasria too?
Karen: Equity market risk is one of our top 5 risks, but not our biggest risk. We have limited exposure to the equity market as part of our investment strategy.
FA NEWS: What is the major "solvency” risk faced by Sasria?
Karen: Due to the nature of our business our biggest risk pertains to non-life catastrophe risk. This risk is driven by the cover we provide for man-made catastrophe events such as riots, strikes and terrorist attacks. We mitigate this risk by the purchase of reinsurance cover on the local and international markets. Unfortunately the standard model does not take into account the purchase of catastrophe cover.
FA NEWS: SAM introduces stringent new capital requirements. What were the most significant "hurdles” for Sasria to overcome and are you confident with your current capital position?
Karen: Sasria always maintained more capital than what was required by the FSB under the old legislation, as we knew that our risk profile was different from most insurance companies. Sasria performs PML studies annually to identify the impact of certain events / scenarios on our capital and these studies form the basis of our reinsurance strategy.
FA NEWS: What major changes, if any, does Sasria still have to make to ensure compliance with SAM?
Karen: The biggest change pertains to the way we identify and manage our risk and the way we report on it. The company has a very detailed project plan to ensure that the people, data and IT systems are in place to comply with the SAM requirements.
FA NEWS: Was SAM really necessary to address local solvency concerns, or was the regulation driven by a need to "keep up” with our European insurance peers?
Karen: I believe SAM was necessary to address local solvency concerns. Some aspects could have been changed to take into account our local conditions.
FA NEWS: Can you offer any other insight into how SAM affected Sasria and its major shareholder?
Karen: Sasria has always maintained higher-than-required capital funds in financial instruments that can easily be converted should the funds be required. The capital model work under SAM had a significant impact on how we structure our reinsurance and how we invest our assets going forward. Risk management systems are further strengthened by the work currently being done in this area.
