This document, published on 9 September proposes to:
- Set out the final reforms on how to best achieve the objectives of insurance supervision, i.e. to promote the maintenance of a fair, safe and stable insurance sector for the benefit and protection of policyholders in respect of reinsurance, while supporting broader national policies on financial inclusion;
- Respond to key issues raised in the comments received on the Discussion Paper; and
- Indicate how these final reforms will be implemented.
Summary of key amendments to proposed reforms
- Microinsurers will be allowed to conduct microinsurance reinsurance business if specifically so authorised
- Cell captive insurers will only be prohibited from insuring the risks associated with the insurance obligations of another insurer licensed in South Africa, i.e. they may reinsure risks from other countries
- In respect of the equivalence assessments of the regulatory frameworks of foreign jurisdictions in which reinsurers are based, the FSB will provide an initial list of equivalent jurisdictions
- Reinsurance placed with branches of foreign insurers or Lloyd’s underwriters by local direct insurers or local professional reinsurers will be treated the same for purposes of solvency assessment to reinsurance placed with a local professional reinsurer or a local direct insurer. The FSB will provide a clear definition of what will constitute soliciting business in South Africa
- The FSB will allow composite reinsurance licences, but not when writing reinsurance of investment classes
- Reinsurance contracts relating to international insurance programs are excluded from calculating the limit in the reforms addressing fronting arrangements
- Reinsurance of linked investment business will be allowed
- For purposes of the solvency assessment of insurers, the credit quality step used for purposes of counterparty default risk will be as follows
- In respect of local subsidiaries of foreign reinsurers and local direct insurers, an upgrade can be applied to the credit quality step to offset any downgrade in the rating arising from the sovereign rating cap; and
- In respect of branches of foreign reinsurers, Lloyd’s of London and cross-border supply by reinsurers in equivalent jurisdictions, the international rating may be used; and
Pay-as-paid clauses will be allowed, but only for certain commercial policies, and subject to certain conditions.