Solvency Assessment and Management effective date moved to 1 January 2015
Last Updated Mar 2012

SAICA advises South African insurers not to lose momentum as a result of developments from the European Solvency II Directive

Johannesburg, Wednesday, 14 March 2012 â€" While South Africa’s Insurance Regulator is currently developing Solvency Assessment and Management (SAM) with the effective date being pushed out to 1 January 2015, insurers are advised not to relax in their preparation.

Yusuf Dukander, Project Director: Financial Services at the South African Institute of Chartered Accountants (SAICA) has cautioned insurers against complacency, stating that the new proposed risk-based regime will require an overhaul of systems and processes to ensure that the anticipated SAM framework is appropriately and successfully implemented by all insurers. However, it is envisaged that the SAM framework and the existing regime will continue to run parallel during 2014.

Interim measures regarding the prescribed requirements for the calculation of the values of the assets, liabilities and capital adequacy requirements of short-term insurers was issued by the Financial Services Board (FSB) in 2011. Further interim measures regarding insurance groups, governance, risk management and internal controls for life and non-life insurers are expected to take effect from 1 January 2013.

Dukander draws attention to the common theme to have emerged, noting that just like “Basel III’ (global capital and liquidity standards for banks), SAM will be a comprehensive set of reform measures developed with the intention of strengthening the regulation, supervision and risk management of the insurance sector locally. As such, its requirements thus far are being embraced by South Africa’s insurance industry as the FSB’s approach to implementation of the SAM framework has ensured an inclusive consultative process with all key stakeholders.

“More specifically,” says Dukander, “SAM will increase the quality of insurers’ capital as a result of the design of the new framework, which encompasses more appropriate capital requirements and a consequent reduction in systemic risk. As a corollary, SAM will improve risk management, strengthen supervision and enhance disclosures to heighten insurers’ transparency.”

He emphasises that post-SAM, insurers will be better positioned to withstand periods of stress. “That’s because it will be imperative for insurers to hold sufficient capital, depending on their exposure to risk, their risk profile and risk appetite, their respective business models, and prevailing market and economic conditions.

“The framework is also designed to create a macro-prudential layer to reduce systemic risk. This ties in with the G20’s agenda of moving towards a system of financial soundness and stability for financial services institutions.”

Dukander adds: “We encourage all insurers to engage with providers across their entire value chain to fully assess the impact of SAM on its activities to address the following:

Upgrade of systems and processes
Staffing and resource requirements
Mandates
Costs and fee analysis.”

Note for editors

The first round of Quantitative Impact Studies (QIS) 1 was conducted during 2011 with an overwhelming majority of South African insurers participating in the study as an initial indication of an insurer’s implementation efforts for Pillar 1. The second round QIS 2 will be conducted during 2012 and a mandatory QIS 3 during 2013 to assess the impact of SAM in the insurance industry.

The SAM project governance structure is set out below. Various SAM task groups have been established to undertake technical work and make recommendations on specific issues. These also include the Economic Impact Study and Tax Task Groups which report directly into the Steering Committee to address implications for the industry and how best for the FSB to develop the new regime.

Steering Committee


The highest body responsible for coordination and driving the implementation of SAM. The Steering Committee meets at least quarterly and includes nominated representatives from various industry bodies.

Quantitative Requirements Subcommittee (Pillar I)


Tasked with making recommendations on quantitative requirements including capital models, technical provisions, valuation bases and the use of internal models.

Risk Management and Governance Subcommittee (Pillar II)


Tasked with making recommendations on risk management, internal controls and corporate governance standards.

Reporting and Disclosure Subcommittee (Pillar III)


Tasked with making recommendations for supervisory and public reporting and disclosure requirements.



MEDIA CONTACTS:

Bontle Tsikwe
Communications Coordinator: Corporate
SAICA Communications & Marketing Division
Tel: 011 621 6712
Email: bontlet@saica.co.za

Nkolola Halwindi
Project Director: Communication
SAICA Communications & Marketing Division
Tel: 011 621 6713
Email: NkololaH@saica.co.za



Notes to Editors

ABOUT SAICA:
The South African Institute of Chartered Accountants (SAICA), South Africa’s pre-eminent accountancy body, is widely recognised as one of the world’s leading accounting institutes. The Institute provides a wide range of support services to more than 30 000 members who are Chartered Accountants and hold positions as CEOs, MDs, board directors, business owners, chief financial officers, auditors and leaders in their spheres of business operation. Most of these members operate in commerce and industry, and play a significant role in the nation’s highly dynamic business sector and economic development.

SAICA serves the interests not only of the Chartered Accountancy profession, but also of society in general through its key objective of upholding professional standards and integrity. The pre-eminence of South African Chartered Accountants [CAs(SA)] nationally and internationally attests to the successes achieved by SAICA on a broad global canvas. SAICA’s members enjoy the privilege of using the highly regarded and prestigious CA(SA) designation. Members of SAICA are subjected to a Code of Professional Conduct, which provides guidelines for ethical and professional behaviour. Fundamental ethical principles to which CAs(SA) are expected to achieve include:

Integrity;
Objectivity;
Professional Competence and Due Care;
Confidentiality; and
Professional Behaviour.

SAICA members serve on international accounting bodies including; the Trustees of the International Financial Reporting (IFRS) Foundation, the International Accounting Standards Board (IASB), the IFRS Interpretations Committee, the IFRS Advisory Council and the Council of the International Federation of Accountants (IFAC). SAICA is also a member of The Global Accounting Alliance (GAA).

For more information visit www.saica.co.za