Insurance industry is gearing up for SAM

Only 33% of organisations indicated at least a Compliance Plus target state, compared to 100% in the UK. This is likely as a result of the Financial Services Board (FSB) being less prescriptive that it’s UK equivalent. Close to 60% of spend is expected t

Solvency Assessment and Management (SAM), the new regulatory regime for South African insurers is expected to be implemented in January 2014. Based largely on Solvency II, the new regime in the European Union, SAM is expected to result in significant changes in the way insurers are run. With the SAM timelines being agreed by the FSB at the end of 2010, the insurance industry can now prepare for and progress towards the new regime with certainty of implementation inJanuary 2014.

Deloitte is looking to undertake regular research to assess insurers’ preparations and approaches to SAM in order to keep abreast of market developments. As part of this research, the SAM Benchmarking Survey 2010, conducted in December 2010, indicates that while there is greater awareness of the new capital and risk management regime, there is a wide variation of preparedness across the industry. Given the scale of work involved and the compliance timeframe, companies need to be making significant steps in their progress.

Wayne Savage, Deloitte Capital Markets partner, said:

“In most cases organisations are aware of what they need to do but will require a significant investment of effort or to make this happen. January 2014 will come around very quickly for those who are not getting their preparations well in hand now.“

“Through adopting a business capability led implementation approach Deloitte has seen how SAM is transformed from a regulatory compliance initiative into an initiative that supports value creation in business. Similarly this type of approach integrated within the governance requirements leads to greater Board and senior management involvement in the initiative.”

Awareness of SAM is very mixed across organisations, with the actuarial department being the most aware. 89% of organisations rated awareness at the Board level as poor or average, indicating that significant work is needed in this area, especially as SAM programs move into the design stage.

Only 33% of respondents indicated at least a ‘Compliance Plus’ target state, compared to 100% in the UK. 44% indicated a ‘Compliance’ target and only 22% ‘Market Leading’. A majority of companies are looking at IFRS4 Phase II together with SAM, a figure that compares well with UK insurers. Deloitte has consulted with several of its global clients who believe that, regardless of differences between the SAM and IFRS 4 phase 2 regimes, there are tangible opportunities for synergies and companies should consider the requirements of these two regimes in an integrated manner to minimise implementation costs and maximise benefits for their businesses.

The majority of companies indicated that they are still developing and signing off the business case (67%), with only 33% working on the detailed design or early build of internal models (11%). Looking ahead, there appears to be a focus on performing gap analyses and preparing the Quantitative Impact Studies undertaken as part of the development of SAM.

Respondent’s budgets are at different stages of approval. Only 22% have been approved and the remaining budgets are at various stages of review or are under development. The majority (60%) of the costs are expected to be incurred in 2011 and 2012. Resource levels will need to be dramatically ramped up over Q4 2011, or Q1 2012 to allow for this spend profile. A lack of resources in the risk, actuarial and finance areas was highlighted as a key risk.

Andy Rayner, national leader of Deloitte Actuarial and Insurance Solutions added: “In addition to these areas, clarification from the FSB on the final requirements of SAM remains a top concern for the industry as insurers prepare for the new regime. The tight timelines set by the FSB for the implementation of SAM together with delays in the finalisation of Solvency II are likely to mean that insurers won’t know what the final SAM requirements are until fairly late in the process. However this does not mean insurers can delay their SAM projects until there is further clarity – there are many other areas where companies can, and should, start to prepare.”