Changing landscape of the South African Short Term Insurance Market
In South Africa, the short-term insurance market has seen the Broker space change significantly in 2011 with, most lately, Marsh acquiring Alexander Forbes Risk Services to introduce Marsh Africa. Now it is the Insurer’s turn with (among even more regulat
From 01 January 2012, the Financial Services Board has introduced new Solvency rules for Insurers (including client Captives). Instead of focusing on the “one size fits all” relationship between surplus assets and premium volume (solvency margin, with 25% being the “norm”), there is now a new requirement that the remaining Equity is also adequate, relative to a new standard called the Capital Adequacy Requirement (CAR).
Most of our Insurers will need to include this for the first time in their 31 March 2012 quarterly returns to the Registrar.
How much do we need to know about it..?
Prescribed Assets
The rules have been strengthened around accounting for prescribed Insurer Assets.
Prescribed Liabilities
Here again, the rules have been strengthened, down to focusing specifically and differently on each of our eight statutory classes of insurance (Property, Liability, Accident & Health, Motor, Transportation, Engineering, Guarantee and Miscellaneous). Within these classes, special attention has been given to creating more robust calculations for -
• Unearned premium provisions
• Unexpired risk provisions
• Outstanding claims reserves
• Incurred but not reported claims reserves
Free Equity (Net Assets)
The remaining Equity will now be measured as well, as a factor (or percentage) of a new set of calculations being the Capital Adequacy Requirement (CAR). The “standard” minimum Equity that will be required by the market is likely to be 1.5 times (or 150% of) the CAR, as opposed to the 1.0 times (or 100%) required by the FSB.
Capital Adequacy Requirement
The CAR calculations are sophisticated, technical and more in line with modern international requirements. They are referred to as the “new interim requirements” and function as a “front runner” in advance of Europe’s Solvency II and our own SAM (Solvency Assessment & Management) rules.
Here is what we broadly need to be aware of -
• There are three CAR calculation options for Insurers being (1) Minimum Capital Adequacy
(2) Solvency Capital Adequacy (3) Insurers own equivalent proposal, if accepted by the FSB.
• The Minimum Capital Adequacy is the highest of (1) R10 million (2) 13 weeks Operational Expenses or (3) 15% of Net Premiums (recent or current).
• The Solvency Capital Adequacy is a combination of complex calculations for (1) Insurance Risk
(2) Market Risk (3) Credit Risk and (4) Operational Risk. The Credit Risk calculation takes existing professional Credit Ratings into account (e.g. A, A-, A+, AA, AA-, AA+, AAA etc).
• An Insurer may offer its own equivalent calculations for prior approval by the FSB but this will only apply from 2014 onwards.
