Over the past year, several legal and regulatory developments have reinforced the importance of good governance and transitional compliance in the insurance sector. Among the most consequential are two court rulings that continue to shape how insurers approach key-person appointments, Memorandum of Incorporation amendments, and regulatory notifications, narrowing the Prudential Authority’s enforcement powers and signalling a shift towards more proportionate, evidence-based supervision.
The decisions, delivered by the Financial Services Tribunal (FST) in December 2022 and the High Court in January 2025, emphasise that insurers must understand transitional rules, properly document conditional key-person appointments, and retain evidence where administrative delays cause no harm.
In an analysis, Eben Smit, director: corporate and commercial law at Cliffe Dekker Hofmeyr, writes that the rulings confirm a key principle: although regulatory approval is required for certain key-person appointments, the approval does not necessarily have to be obtained before the appointment is made. If the appointment is explicitly made subject to PA approval, Smit said, it does not amount to a breach of the Insurance Act.
The matters arose after the PA imposed multimillion-rand penalties on Land Bank Insurance Company (LBIC) and Land Bank Life Insurance Company (LBLIC) for alleged governance failures.
The PA said LBIC amended its memorandum of incorporation without prior approval, both insurers appointed directors without the required sign-off, and they submitted late notifications of director terminations. LBIC was fined R5 million (R3m suspended), while LBLIC faced a penalty of just over R2m (R1.376m suspended) in April 2022.
The FST subsequently reduced the penalties to R250 000 each, half of which was suspended under the same conditions as initially imposed.
Read: Tribunal slashes penalties imposed on the Land Bank’s insurance companies
The PA sought judicial review, but the High Court in Pretoria upheld the FST’s ruling in January 2025.
Read: Court backs FST’s decision to scale down penalty for insurance breach
Critically, Smit said, “penalties imposed by the regulator for non-compliance with statutory timelines should reflect actual harm caused rather than technical non-compliance”.
Tribunal: PA acted outside its powers on STIA penalty
LBIC and LBLIC applied to the Tribunal to have the PA’s penalties reconsidered. The Tribunal agreed that the PA’s reliance on section 23(1)(a) of the Short-term Insurance Act (STIA) – which required prior approval for amendments to an insurer’s MOI – was unlawful.
Although the Insurance Act’s transitional provisions allow certain actions to be taken under the repealed STIA, the Tribunal found that the STIA “contained no provision for the imposition of an administrative penalty for a contravention of section 23 … As a result, no administrative penalty could competently have been imposed.”
On the appointments issue, the Tribunal said the PA’s willingness to grant retrospective approval undermined its own position that approval must happen first. Where retrospective approval is given, it held, the appointment and approval effectively “coincide”.
The Tribunal accepted that the insurers submitted late notifications under section 16 but noted the absence of any actual harm.
It remarked: “There is no indication that the PA, the company, its shareholder, or policyholders were in any way affected by the breach. It is apparent that the PA was more concerned about the general problems with the administration of the applicants than with the seriousness of the particular contravention.”
It also criticised the size of the penalties, saying that “taken in isolation it is excessive”.
The Tribunal reduced the penalties to R250 000 each, with half suspended.
High Court upholds Tribunal and rejects PA’s challenge
The PA took the matter on judicial review, claiming the Tribunal acted irrationally and beyond its powers. The High Court dismissed the application with costs.
On section 14, the Court firmly backed the Tribunal’s interpretation, stating: “Section 14, on no interpretation, reads that there must be approval of directors by the PA before appointment … logically and practically, there cannot be approval before appointment.”
Regarding section 16, the Court said the PA failed to show any adverse consequences flowing from the late notifications: “There is, however, no evidence that stakeholders herein were not protected … With the PA not setting out … what factors were considered, the FST acted within its powers to substitute the amount of the penalty and acted rationally.”
The Court also agreed that the PA had acted outside its powers when it imposed a penalty under section 23(1)(a) of the STIA, stating: “It is undeniable that the FSR Act cannot be applied retrospectively … the FST was correct in finding the PA acted ultra vires when it imposed the penalty for the contravention of section 23.”
What the rulings mean for insurers
Smit said the two decisions provide important clarity on how transitional provisions should operate and what insurers can expect from the PA’s enforcement approach.
He noted that although the PA was entitled to rely on section 23(1)(a) of the repealed STIA during the transitional period, the superseding legislation did not give the regulator the authority to impose penalties for contraventions that took place after the STIA’s repeal.
Crucially, he pointed out that the STIA “did not make provision for administrative penalties to be imposed on short-term insurers for amending their MOI without prior regulatory approval”.
On section 14 of the Insurance Act, Smit said the rulings confirm that PA approval is still required for the appointment of certain key persons, but the approval does not need to be granted before the appointment.
Where appointments are explicitly made subject to PA approval, “such appointments do not amount to a breach the Insurance Act”.
Smit added that section 16 remains a critical compliance obligation because insurers must notify the PA within 30 days when a key person’s appointment ends. However, he emphasised that penalties for missed deadlines “should reflect actual harm caused rather than technical non-compliance”.
He said the decisions reinforce three practical priorities for insurers:
- Understanding the Insurance Act’s transitional provisions and regulatory time limits;
- Documenting all key person appointments that are made subject to PA approval; and
- Ensuring timely section 16 notifications while keeping evidence on hand to show that any delays caused no prejudice.
Read the High Court judgment here.
Read the Tribunal ruling here.
