insurance laws amendment bill
Post on 04-Jan-2016
27 Views
Preview:
DESCRIPTION
TRANSCRIPT
FinancialServices
Board INSURANCE LAWS AMENDMENT BILL
Jonathan DixonDeputy Executive Officer: Insurance
Financial Services Board
Page 1
FinancialServices
Board
Overview
Page 2
• Background
• Main elements
○ Governance framework
○ Insurance groups supervision
• Timelines
• Q&A
FinancialServices
Board
Background
Page 3
• IMF Report on Standards & Codes, 2010
○ South Africa’s regulatory system is fundamentally sound and is substantially compliant with international standards
○ Insurance regulation is also sound and while the
assessment identified areas for development, these are being addressed
○ Main areas for development include insurance group
supervision and insurer governance, risk management and internal control requirements
FinancialServices
Board
Background
Page 4
IAIS International Core Principles (ICP) Comments
Corporate Governance“The supervisor requires insurers to establish and implement a corporate governance framework which provides for sound and prudent management and oversight of the insurer’s business and adequately recognises and protects the interests of policyholders.”
No explicit requirements for insurers – limited to requirements of the Companies Act.
Risk Management and Internal Controls“The supervisor requires an insurer to have, as part of its overall corporate governance framework, effective systems of risk management and internal controls, including effective functions for risk management, compliance, actuarial matters and internal audit.”
Recommendation to develop insurance specific requirements.
FSB to provide guidance to companies on its observations of good and bad risk management practices.
FinancialServices
Board
○ Effective insurance group-wide supervision is also key to 3rd country equivalence under Solvency II – EU Member states may provide that the calculation of the group solvency shall take into account the Solvency Capital Requirement and the own funds eligible to satisfy that requirement, as laid down by the third-country concerned
Background
Page 5
IAIS International Core Principles (ICP) Comments
Group-wide supervision“The supervisor supervises insurers on a legal entity and group-wide basis.”
Significant gaps regarding the powers of the FSB and the focus of supervision
FinancialServices
Board
Background
Page 6
SAM
Qua
ntita
tive
requ
irem
ents
Qua
litat
ive
requ
irem
ents
Rep
ortin
g &
D
iscl
osur
e
Insurance Groups
Pillar 1 Pillar 3Pillar 2
ILAB introduces interim measures on Pillar 2 and insurance group supervision as a stepping-stone to
SAM implementation in 2015
FinancialServices
Board
29/10/2008
Page 7
Background
• Process to date○ SAM Structures developed proposals
○ FSB reviewed and finalised proposals
○ Discussion Documents 1 and 81 reflect the details
○ ILAB drafted based on discussion documents
○ ILAB and Discussion Documents were issued for
industry comment
○ Revised draft submitted to NT for consideration
FinancialServices
Board
Overview
Page 8
• Background
• Main elements
○ Governance framework
○ Insurance groups supervision
• Timelines
• Q&A
FinancialServices
Board
Governance Framework
The ongoing financial soundness and stability of an insurer is highly dependent on the quality of its
leadership, governance, and management teams, and on its risk management and internal control systems. It is therefore vital that these interim measures prepare insurance and reinsurance companies for the SAM
regime. Ideally the interim measures should increase awareness of risk exposures, as well as improve the
scrutiny and management of these matters.
Page 9
FinancialServices
Board
Governance Framework
Out- Out- sourcingsourcing
Page 10
FinancialServices
Board
Governance Framework
• Objective
○ Adopt and implement an effective governance framework
○ Prudent management and oversight of business
○ Adequately protects the interests of policyholders
○ Proportionate to nature, scale and complexity of business and risks.
Page 11
FinancialServices
Board
• Requirements
• adequately protects the interests of policyholders.
Governance Framework
Org Structure Compliance Written Policies
Page 12
FinancialServices
Board
Board of Directors
• Objective
○ Adopt and implement a governance framework
○ Prudent management and oversight of business
○ Adequately protects the interests of policyholders.
Page 13
FinancialServices
Board
• Requirements over and above the Companies Act, given objective of adequate policyholder protection
Board of Directors
Composition Structure Duties
Page 14
FinancialServices
Board
Senior Management
• Key requirements
○ Carry out day-to-day operations effectively, in line with strategies, policies and procedures
○ Promote a culture of sound risk management, compliance, and policyholder protection○ Provide adequate and timely information to the Board, including information necessary
for the monitoring and review of company performance, risk exposures, and performance of senior management
○ Provide the registrar and other stakeholders with information required to satisfy legal and other obligations
Page 15
FinancialServices
Board
Risk Management System
• Objective
○ The risk management system must be capable of supporting the Board of Directors in its responsibilities with respect to the furtherance of the safe and sound operation of the insurer and the protection of policyholders.
Page 16
FinancialServices
Board
• Requirements
• Adequate for nature, scale and complexity, adapted• Strategy should be across all activities, consistent with business strategy
Risk Management System
Elements Strategy
Board & Management reports - material risks, and risk management effectivenessBoard & Management reports - material
risks, and risk management effectiveness
Material Risks
Regular review for modification & Improvement - documented
Regular review for modification & Improvement - documented
processes for contingency planning, business continuity & crisis management
processes for contingency planning, business continuity & crisis management
Page 17
FinancialServices
Board
Internal Control System
• Objective
○ The Internal Control System should provide the Board of Directors with reasonable assurance from a control perspective that the business is being operated consistently with the
(a) strategy set by the Board of Directors,
(b) agreed business objectives,
(c) agreed policies and processes, and
(d) laws and regulations.
Page 18
FinancialServices
Board
1 2 3 4
Control Functions
• General Requirements
○ necessary authority, independence, resources, expertise and access to all relevant employees and information
Page 19
FinancialServices
Board
Control Function Heads
Conditions Requirements
Page 20
FinancialServices
Board
Outsourcing
• Requirements
○ An insurer that outsources any function or activity must have an outsourcing policy that includes the matters as may be prescribed.
Page 21
FinancialServices
Board
Outsourcing - Limitations
• Cannot outsource aspects which may:
○ Materially impair the quality of governance
○ Materially increase risk or affect ability to manage risks and meet legal & regulatory requirements
○ Impair the registrar’s ability to monitor compliance with regulatory obligations
○ Undermine continuous, fair & satisfactory service to policyholders
Page 22
FinancialServices
Board
Outsourcing – Requirements
○ Remuneration must be reasonable and commensurate with the activity outsourced
○ The Board must be satisfied that outsourcing of a control function does not undermine its independence, objectivity, and effectiveness
○ Prior to outsourcing a management, control or material function, must notify Registrar
○ ILAB will replace current Directive 159
Page 23
FinancialServices
Board
Overview
Page 24
• Background
• Main elements
○ Governance framework
○ Insurance groups supervision
• Timelines
• Q&A
FinancialServices
Board
Insurance Groups
• Significance○ Lessons from financial crisis – focus on system-wide
supervision and systemically significant financial conglomerates
○ Risks to policyholders can arise from elsewhere in the group
○ Insurance groups are exposed to and a source of specific risks, including liquidity risk, contagion risk, complexity risk, agency risk
○ Financial conglomerates are a prominent feature of the SA financial landscape
Page 25
FinancialServices
Board
Insurance Groups - Definition
• “Two or more entities of which at least one is an insurer and one has significant influence on the insurer.”
• The significance of influence is determined based on:
○ participation
○ influence and / or other contractual obligations
○ interconnectedness
○ risk exposure
○ risk concentration
○ risk transfer and / or intra-group transactions
Page 26
FinancialServices
Board
Category 1 : 1 insurer + 1 or more non-financial entities
Category 2 : 2 or more insurers
Category 3 : Financial conglomerate
An insurance group is a financial conglomerate if it conducts insurance activities plus financial activities either:
o In at least one other regulated financial sector; o In at least one non-regulated financial sector to
the extent that the financial activities in that sector are not subject to group-wide/consolidated supervision by sectoral frameworks.Page 27
Insurance Groups - Definition
FinancialServices
Board
Group-wide Supervision
• Regulatory requirements○ Establish a non-operating holding company (NOHC): can be
applied at insurance group or insurance sub-group level
○ Transparent group structure
○ Registrar’s approval for material acquisitions
○ Group solvency assessment
○ Possible capital add-on, limits on intra-group transactions and risk concentrations
○ Group-wide governance and reporting requirements
Page 28
FinancialServices
Board
Overview
Page 29
• Background
• Main elements
○ Governance framework
○ Insurance groups supervision
• Timelines
• Q&A
FinancialServices
Board
29/10/2008
Page 30
Timelines
• Way forward○ Aim to table in Parliament before end-2012
○ Implementation mid-2013 – stepping stone to SAM
final measures
○ Drafting of subordinate legislation
○ SAM Pillar II Readiness Review
○ Information request to all insurance groups on legal
and organisational structure
○ Finalise group returns
FinancialServices
Board
Questions
Page 31
top related