principles for amending the insurance and pensions legislation - final june 2014

8/12/2019 Principles for Amending the Insurance and Pensions Legislation - Final June 2014

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MEMORANDUM TO CABINET COMMITTEE ON LEGISLATION

PRINCIPLES FOR THE PROPOSED AMENDMENTS TO THE

INSURANCE AND PENSION LEGISLATION

Introduction

1. This Memorandum outlines principles that will underpin review of

legislation for the insurance and occupational pension schemes,

notably, the Insurance Act [Chapter !"#$%, the &ension ' &rovident

(unds Act [Chapter !"#)% and the Insurance ' &ensions

Commission Act [Chapter !"1%. The principles are also proposing

a few amendments to the *ational +ocial +ecurity Authority[Chapter 1$"#!% and the Medical +ervices Act [Chapter 1"1-%.

. The proposed review of the insurance ' pension legislation has

been necessitated by the need to address identified deficiencies in

the current legislation, as well as the need to align imbabwe/s

legislation with international best practices.

-. Most of the deficiencies were identified through the #1

assessment done by e0perts from the +AC +ecretariat on the

level of compliance of the country/s legislation to the industry

standards set by the International Association of Insurance

+upervisors 2IAI+3 and the International 4rganisation of &ension

(unds 2I4&+3. Therefore, bench mar5ing imbabwe/s legislation to

thecore principles of insurance and pension funds regulation set by

these international standard setting bodies/forms the basis of the

proposed amendments.

!. Incorporating these international standards in the country/s

insurance and pension legislation will ensure a sound regulatory

and supervisory framewor5. The ade6uacy of the regulatory

framewor5 is a re6uisite for maintaining fair, safe and stable

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insurance and pension sectors for the benefit and protection of the

interests of policyholders, as well as contributing to the stability of

the financial system. As such, the proposed review is being

pursued in the spirit of continuously updating the insurance and

pension legislation in line with dynamic global and regional financial

trends.

Justification for t! Pro"os!d A#!nd#!nts

. The dynamic nature of the financial sector compels regulators of

the financial sector to 5eep pace with developments in the global

financial mar5ets arising mainly from technological innovation and

the development of new financial instruments by financialinstitutions. (inancial sector regulators should therefore, constantly

monitor developments in the sector and align their legislation to

mar5et developments.

7. Through the proposed amendments, 8overnment strives to create

a robust andinternationally respected insurance and pension

industry that is a vehicle for ris5 transfer for the commercial,

industrial and personal insurance covers, playing its national role offinancial security to the public and financial support to the fiscus.

$. The legislative review will focus on such issues li5e, corporate

governance, legal ' regulatory framewor5 and prudential

standards. +pecific areas that the review will focus on include9

empowering the Insurance ' &ensions Commission to effectively

supervise the sector, addressing corporate governance issues, anti:

money laundering and countering the financing of terrorism, groupwide supervision of financial conglomerates, regulation of medical

aid schemes and cooperation among financial sector regulators.

;. +pecific areas for the pension sector include enhancing protection

of policy holders, rights of policy holders, allowing offshore

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investments by pension funds and insurance companies, regulation

of insurance and pension aspects of the *ational +ocial +ecurity

Authority 2*++A3, valuation of pension assets, and I&


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Commissionerin terms of the e0isting Acts prior to the formation of

the I&


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challenges in the ban5ing sector, similar changes need to be

effected in the insurance and pension industry.

1;. The re6uirement of Insurance Core &rinciple 2IC&3 $ is that I&


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-. In this regard, there is need to amend the I&


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therefore need for a statutory re6uirement to put in place =oard

Committees which should at a minimum include the Technical

Committee such as Audit, BegalIT 8overnance andBicencing

Committees among others.

Mana(!#!nt S)i**s

$. I&


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-#. In addition, the re6uirement for fit and probity test is not currently

applicable to shareholders, actuaries, auditors, asset managers,

rating agencies and other 5ey service providers. (urther, there is no

re6uirement obliging the insurer to regularly review and inform the

supervisor of changes in the above appointments. Thus, detailed

vetting of the actuaries and auditors is re6uired to chec5 whether

they are e0perienced enough for the comple0ity of the insurer/s

ris5s and business.

-1. The above proposals to empower I&ected to integrity

and competence tests board members, senior management,

actuaries, trustees, fund administrators, auditors and significant

shareholders of an insurer, bro5ing firm and pension funds to be

and remain suitable to fulfil their respective roles

-. To this end, it is proposed that the Insurance Act and the &ension

and &rovident (unds Act be amended to obligeregulated entities tosee5 I&


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--. It is proposed that the Insurance Act and the &ension and

&rovident (unds Act be amended to re6uire insurance companies

and pension funds to haveor enlist the services of auditors and

actuaries unless an e0emption has been granted in writing by the

Commission. Fualifications and e0perience of auditors, actuaries

and any other 5ey service providers should be thoroughly

investigated according to best practices to see whether they are fit

and proper for the nature and scale of the business of the insurer.

Sar!o*din( R!strictions-!. The Insurance Act does not empower I&


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legislation 2egulations3. @here there is a shareholder who wants

to ac6uire significant shareholding which is above the prescribed

thresholds, such a transaction can only be granted on e0ceptional

basis and in consultation with the Minister.

Conso*idat!d Su"!r%ision

-). In the recent past, there has been blaring distinction between

ban5ing and non:ban5ing institutions owing to the growth of holding

companies 2commonly 5nown as financial conglomerates3. These

conglomerates are into various lines of business that include

commercial ban5ing, mortgage lending, insurance, securities,

microfinance, financial advisory, asset management, and property

development among others.!#. The Insurance Act does not provide for consolidated supervision

ofthese conglomerates. In the absence of consolidated supervision,

it is becoming increasingly difficult for financial sector regulators to

coordinate their activities in supervising conglomerate organisations

to curb regulatory arbitrage. This has been e0acerbated by the silo

regulatory model for the imbabwean financial sector, where there

are three regulators for ban5ing 2eserve ban53, insurance and

pensions 2I&


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non:regulated entities 2including parent companies, their

subsidiary companies and companies substantially controlled or

managed by entities within the group39 and

special purpose entities.

!. In line with the ongoing review to the =an5ing Act, the I&


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leaving employment. Although employment contracts may be

assumed to deal with this issue, there is need to be more e0plicit in

legislation as it is an important issue.

!$. Eowever, it is a re6uirement of the Insurance Core &rinciplesthat I&


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!). In light of the above challenges facing the medical aid schemes

in the region, +AC Ministers responsible for (inance and

Investment made a decision at their meeting of -# July ##) that

these institutions should rigorously be supervised under the

purview of insurance and pension regulators. The decision was

adopted by +AC as the activities of medical aid societies or

schemes constitute insurance business. This +AC position is

being pursued in the spirit of harmonisation of the regulatory

framewor5 for non:ban5ing financial institutions in fulfillment of the

+AC (inance and Investment &rotocol 2(I&3.

#. To this end, it is proposed that medical aid schemes which are

currently registered by the Ministry of Eealth' Child Care be

supervised by the I&


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ensuring that the public is protected against ma: practice by these

institutions.

Pro"os!d R!(u*ation of NSSA

. *++A operates a national pension scheme which is not

regulated at the moment, though the institution gets policy direction

from the Ministry of Babour. There is a possibility that the

unregulated social security schemes could create regulatory

arbitrage which could be damaging to the pensions industry.

-. It is proposed that the *ational +ocial +ecurity Authority be

brought under the purview of I&


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Act do not have provisions for corrective action in the form of

curatorship by I&


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Insurance Act be amended to ensure that I&


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A""oint#!nt of Ins"!ctors

7. The current Insurance Act provides for the appointment of only

individuals as inspectors. This limits the scope of wor5 of such

bodies as auditors, and actuaries who may not be engaged as

inspectors. The proposed amendments are therefore meant to

e0tend the appointment of inspectors to include corporates or

associations.

Pro%ision R!*atin( to Association of Und!r$rit!rs77. Currently the Insurance Act does not provide for the registration

of Associations as insurers. Bloyds nderwriters 2an Association3

was operating in imbabwe under some 5ind of gentlemen/s

agreement without formal registration. +ince Bloyds is not the only

organisation that may desire to operate in imbabwe/s mar5et as

an Association, it is recommended that the Insurance Act be

amended to provide for registration of Associations as re:insurers.

Off!nc!s co##itt!d -' or $it unr!(ist!r!d "!rsonsThe current Act is discriminatory in dealing with unregistered entities

doing business with registered persons. It penalises registeredcompanies dealing with unregistered entities. The proposal is to

penalise both the registered persons and unregistered entities

involved in the infringement of the insurance law.Co##ission #a'

Pr!scri-! Mini#u# Pr!#iu#s7$. I&


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R!#ission of Pr!#iu#s

7;. In addition, some bro5ing firms collecting premiums on behalf of

insurers fail to remit premiums timely, resulting in the insurer failing

to pay claims when they arise. To counteract this, the amendments

are proposing to empower I&


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There are no actuarial valuation guidelines and approval of

valuators.

$1. udicial system might wor5 well, pension rights

are not defined well enough for members to have enforceable

pension rights. +ome pension cases have been heard in

imbabwean courts but this has not helped define pension rights.

To this end, the proposed amendments see5 to address these

deficiencies.

Fund M!#-!rs Prot!ction$. 4ne of the ma>or wea5nesses of the &ension and &rovident

(unds Act is that pension fund member/s access to full contributionrecord is not guaranteed. This is a serious wea5ness in a defined

contribution fund. In light of this deficiency, there is need to amend

the &ension and &rovident (unds Act to address the wea5ness of

non:disclosure.

S!"aration of Duti!s

$-. &ension entities should be re6uired to put in place internalcontrol arrangements that allow for segregation of duties. (or

e0ample, currently, there is no clear separation between those

responsible for investment and those responsible for settlement

and boo5:5eeping. Additionally, there is no separation between

those initiating investments and those implementing them.

P!nsion Funds Offsor! In%!st#!nts

$!. Investment abroad by pension funds should not be prohibitedand, among other ris5s, should ta5e into account the currency

matching needs between pension assets and liabilities.Currently,

the Act does not permit investments abroad, hence the proposal

toempower I&


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sub>ect to compliance with re6uired investment thresholds in

prescribed assets.


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Pu-*ic Disc*osur!

$;. I&


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;. According to the (inancial Action Tas5 (orce 2(AT(3

re6uirements, countries should have AMB?C(T (ramewor5s to

combat the twin evils of money laundering and terrorism financing.

In this conte0t, the insurance regulator is a competent authority with

the responsibility of ensuring that its regulated entities comply with

AMB?C(T re6uirements.

;-. In this regard, proposed amendments to the Insurance and I&urisdiction where it operates9 and

potential impediments to a coordinated solution.

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Count!rin( Fraud in Insuranc! and P!nsion Institutions;$. The deficiency in the I&


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)1. I therefore submit the principles on the proposed amendments to

the Insurance and &ensions Commission Act [Chapter !"1%, the

Insurance Act [Chapter !"#$% and the &ension and &rovident

(unds Act [Chapter !"#)% for consideration by the Cabinet

Committeeon Begislation. All the proposed amendments reflect best

practices in insurance and pension regulation as developed by the

International Association of Insurance +upervisors 2IAI+3 and the

International 4rganisation of &ension +upervisors 2I4&+3.

Eon. &.A. Chinamasa, M&MINISTER OF FINANCE AND ECONOMIC DE/ELOPMENT

! July #1!

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principles for amending the insurance and pensions legislation - final june 2014

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