PRESENTATION TO THE SELECT COMMITTEE ON FINANCE

1
PRESENTATION TO THE SELECT COMMITTEE ON FINANCE
2
Arrangement of sections LT(C1) ST(24)

• ? The arrangement of sections in the Long-term
  and Short-term Insurance Acts are amended

3
(C2) S1 of Act 52 of 1998 Definitions

• ? capital adequacy requirement
• ? fair value
• ? linked liabilities
• ? linked policy
• market-related policy

4
(C2) S1 of Act 52 of 1998 (Minimum) Capital
Adequacy Requirement

Distributable reserves
Excess assets
Shareholders assets
Non-distributable reserves
Capital adequacy requirement (CAR)
Assets covering capital adequacy requirement
Paid-up capital
Minimum CAR
Policy liabilities
and policy and other liabilities
S29(Sound condition) S30(Cover) S31(Spread) S34(Pr
ohibitions) Schedule 3
S29(Sound condition) S30(Cover) S31(Spread) S34(P
rohibitions) Schedule 1
Other liabilities
5
DEFINITIONS LT(C2)
ST(C26(b))

• Managing Executive
• Reason Fit and Proper
• Current definition not clear Interpreted
  differently
• Amendment necessary to make it clear
• Chief Executive Officer
• Managing Executive
• Senior Managers

6
MISLEADING ADVERTISING MATERIAL LT(C3)S4
ST (C27)S4

• Section deals with powers of Registrar to direct
  persons to change or amend advertising material.
• This section is expanded to ensure that
  advertising material that relates to an insurance
  policy includes the name of the insurer that
  underwrites the policy.

• Afford public to verify contents
• Prevent unregistered insurance business
• Was in old insurance Act

7
NAME OF INSURER LT(C4)S8
ST(C27) S8

• ? Registrar must approve name of insurer and
  changes to name.
• ? Amendment is to also approve
• ? Translation
• ? Shortened form or
• ? Derivative
• (acceptable, records, closely related)

8
(C5) S10(h) of Act 52 of 1998Conditions of
registration

• ? Assets at their fair value not to be less than
  liabilities and capital adequacy requirement

9
REINSURANCE LT(C6)S15A
ST(C29)S15A

• ? Composite reinsurance only reinsurance business
• ? Amendment to do business directly with a fund
• ? A fund is a - Friendly Society
• - Pension Fund
• - Medical Scheme
• - Other approved by Registrar

10
Notification of certain appointments,
terminations and registrations LT(C7)S18
ST(C31)S18

• ? Currently insurers must inform Registrar of
• ? Appointment and
• ? Terminations of directors and Managing
  Executive together with reasons for
• appointment or termination

11
Clause 7 cont.

• ? Amendment to also require above if directors,
  Managing Executive resign.
• Currently this section only requires reason for
  termination, resignation to be given by insurer.
• The amendment will further give the registrar
  the option to request reasons from the director
  or Managing Executive if the Registrar so wish.
• ? May not be used in any subsequent criminal
  proceedings

12
DIFFERENT CLASSES OF ORDINARY SHARES LT(C8)s24
ST(C32)s23

• Registrar must give approval
• This is to regulate insurers who conduct their
  business on a cell basis
• The objective of cell business is to
  differentiate between profits to different
  shareholders, which is achieved through the
  issuing of different classes of shares

13
(C8(a)) S24(a)(vi) of Act 52 of 1998(C31(a))
S23(a)(vi) of Act 53 of 1998Preference shares,
debentures, share capital and share warrants

• ? Reduction of share capital in terms of
  sections 83 and 84 of the Companies Act
• (without approval of Registrar)

14
(C9) S26 of Act 52 of 1998(C32) S25 of Act 53 of
1998Limitation on control and certain
shareholding or other interest in long-term
insurers

• ? Replace associates with related parties

15
(C10) S29(1) of Act 52 of 1998 Maintenance of a
financially sound condition

• ? (1)(b) provide for liabilities and capital
  adequacy requirement
• ? Last sentence be in a position to meet
  liabilities and capital adequacy requirement at
  all times

16
(C11(a)) S30(1) of Act 52 of 1998Assets

• ? (1)(a) have assets is not less than
  liabilities and capital adequacy requirement
• ? (1)(b) have, in the Republic, assets, is not
  less than liabilities which are to be met in
  the Republic, and the capital adequacy
  requirement in respect of those liabilities,
• when the values of those assets, and
  liabilities and capital adequacy requirement are
  calculated by means of -
• (i) the method set out in Schedule 2 and
• (ii) the financial soundness method as set out
  in Schedule 3

17
(C11(b)) S30(2) of Act 52 of 1998Dividend

• ? A long-term insurer shall not declare or pay a
  dividend to its shareholders if, and for so long
  as,-
• (a) while it fails to comply with subsection (1)
• (b) if that would result in it failing to comply
  with subsection (1) or
• (c) if the, after such declaration or payment
  of the dividend would result in it failing to
  comply with subsection (1), it would have assets
  the aggregate value of assets which would not be
  less than the aggregate value of its liabilities,
  issued share capital and non-distributable
  reserves

18
(C12) S31 of Act 52 of 1998 Kinds and spread of
assets

• ? (1) shall, in the Republic, have assets,
  other than assets in respect of linked
  liabilities referred to in section 33(2)-
• (a) which is not less than the liabilities
  which have to be met in the Republic, and minimum
  capital adequacy requirement, when the values of
  those assets are calculated by reference to their
  market fair value as defined in the
  regulations and the values of those liabilities,
  other than the said linked liabilities, and
  minimum capital adequacy requirement, are
  calculated by means of the method as set out in
  Schedule 2 3
• (b) which are of the kinds specified in Schedule
  1 and
• (c) which have a market fair value , as
  defined in the regulations, which when expressed
  as a percentage of the aggregate value of its
  liabilities and minimum capital adequacy
  requirement , does not exceed the percentage
  specified in the regulations

19
(C13) S33 of Act 52 of 1998Liabilities

• ? (1) Reference to Schedule 3
• ? (2) Delete subsection

20
(C14) S34 of Act 52 of 1998 (C33) S33 of Act 53
of 1998 Prohibitions concerning assets and
certain liabilities

• ? 34(1)/33(1)(e) include in its assets shares
  held directly or indirectly in its holding
  company
• ? 34(2)(a) derivatives designated as an asset in
  respect of a linked policy referred to in
  section 33(2)

21
(C15) S36(1) of Act 52 of 1998Returns to
Registrar

• ? Numbering of first subsection

22
LT(C16) S39

• Rectifies a textual error

23
FREE CHOICE IN CERTAIN CIRCUMSTANCES LT(C17)S44

• Banks/Money lenders security insurance policy
• Free choice of insurer
• Short-term insurer no free choice (mortgage)
• Long-term insurers lend money to policyholders on
  the security of the value of the policy

24
CASH PREMIUMS LT(C18)S47 LT Only

• Long-term Insurance Act Receipt if premium is
  paid in cash containing name of insurer
• Banks cannot comply and is continuously breaching
  the Act
• Purpose was to protect against brokers
• Banking system enough protection

25
MATERIALITY OF MISREPRESENTATION LT(C19)S59
ST (C6)S53

• wrong disclosure
• Repudiation of claims
• no disclosure
• reasonable insurer(court) (objective
  test)
• Materiality test
• insurer in question
  (subjective test)

26
Certain expressions LT (C20) ST(C39)

• ? Substitution in the Afrikaans text in certain
  definitions of certain expressions

27
(C21(a),(b),(c)) Sch 1 to Act 52 of 1998
(C36(a),(b),(c)) Sch 1 to Act 53 of 1998 Kinds
of assets

• ? 1. securities includes bills, bonds,
  debentures and debenture stock, loan stock,
  promissory notes, annuities, negotiable
  certificates of deposit and other financial
  instruments of whatever nature prescribed by
  the Registrar
• ? 2(b)(i) an over-the-counter instrument, it is
  capable of being readily closed out and is
  entered into with a counterparty for which the
  relevant criteria have been approved by the
  Registrar subject to such conditions as he or she
  may determine
• ? 16(1) in the Table Shares and debentures
  securities issued by a company incorporated in
  the Republic

28
(C21(d)) Sch 1 to Act 52 of 1998 (C36(d)) Sch 1
to Act 53 of 1998 Kinds of assets

• ? 16(5)(a) of Table Listed-
• (ii) securities and shares issued by an
  institution incorporated outside the Republic ,
  in respect of which the Registrar has recognised
  the-
• (aa) stock exchange outside the Republic or
• (bb) country, other than the Republic, in which
  the regulated market concerned is situated,
• subject to the conditions determined by the
  Registrar.
• ? (b) A credit balance in an account with, or a
  deposit, including a negotiable certificate of
  deposit or a bill, accepted by, an institution
  incorporated outside the Republic, in a country
  approved by the Registrar, which would have been
  a bank in terms of the Banks Act, 1990, if it
  were incorporated in the Republic

29
(C21(e)) Sch 1 to Act 52 of 1998 (C36(e)) Sch 1
to Act 53 of 1998 Kinds of assets

• ? 20. Other claims, n.e.s., against-
• (c) a body corporate and any stock or shares in a
  body corporate which is not incorporated and
  registered in the Republic but which, in the
  opinion of the Registrar, carries on business in
  the Republic and which has been approved by the
  Registrar generally by notice in the Gazette and
  subject to the conditions determined by the
  Registrar and specified in the notice

30
(C22) Sch 2 to Act 52 of 1998Method of
calculating of value of assets and liabilities

• ? Repeal of Schedule 2

31
(C23) Sch 3 to Act 52 of 1998Calculation of
values of assets, liabilities and capital
adequacy requirement

• ? Schedule 3 replaced by a new Schedule 3

32
(C23) Sch 3 to Act 52 of 1998Calculation of
values of assets, liabilities and capital
adequacy requirement

• ? Par 1 Definition of approved reinsurance
  policy
• ? Par 2 Calculation of values of assets,
  liabilities and the capital adequacy requirement
• ? Par 3 Effect of reinsurance
• ? Par 4 Amounts to be disregarded
• ? Par 5 Calculation subject to certain
  provisions
• ? Par 6 Registrar may reject certain values
• ? Par 7 Valuation of other liabilities

33
(C24) Arrangement of sections

• ? Dealt with together with clause 1

34
DEFINITIONS (C25)

• ? Lloyds underwriter means an underwriter or
  non-underwriting member of Lloyds
• ? Managing executive as explained
• ? Representative means a natural person
  employed

35
(C26)

• ? Same as Long-term Already explained
• Advertising Material

36
FUNERAL POLICIES ST(C27)S8

• ? This amendment is to make sure that
  Short-term insurers do not sell funeral or
  burial policies because it is long-term
  insurance business

37

• Clause 28 Reinsurance (same as with long-term
  insurance
• Clause 29 Name (same as with long-term
  insurance)
• Clause 30 Notification or certain appointments
  termination and resignations (same as with
  long-term insurance)

38
(C31(a)) S23(a)(vi) of Act 53 of 1998Reduction
of share capital

• ? Amendment dealt with together with clause 8
  (S24(a)(vi) of Long-term Insurance Act)

39
(C31b)

• ? As explained different classes of ordinary
  shares

40
(C32) S25 of Act 53 of 1998 Limitation on
control and certain shareholding or other
interest in short-term insurers

• ? Amendment dealt with together with clause 9
  (S26 of Long-term Insurance Act)

41
(C33) S33(1)(e) of Act 53 of 1998Prohibitions
concerning assets and certain liabilities

• ? Amendment dealt with together with clause 14
  (S34(1)(e) of Long-term Insurance Act)

42
ST(C34)S47

• Free copy of insurance policy
• To be the same as the long-term Insurance Act

43
(C35)S53

• ? As explained clause 19 of LT
• ? Materiality of misrepresentation

44
(C36(a),(b),(c),(d),(e)) Sch 1 to Act 53 of
1998Kinds of assets

• ? Amendment dealt with together with clause
  21(a),(b),(c),(d) and (e) (Sch 1 to Long-term
  Insurance Act)

45
(C37) Sch 2 to Act 53 of 1998Method of
calculation of value of assets and liabilities

• ? Par 1(a)(v) an amount representing a negative
  liability or a reinsurance contract in terms of
  which the short-term insurer concerned is the
  policyholder, except to the extent that it
  represents a claim against a reinsurer in terms
  of an approved reinsurance policy

46
ST(C38) Schedule 3

• 38(a) Rectifies textual error
• 38(a) That transitional provisions will cease to
  apply in the event of either the one or the other
  occurrence not both.

47
ST(C39) Certain expressions

• Dealt with together with clause 20

48
ST(C40) Repeal of Act 49 of 1998

• The Insurance Amendment Act, 1998 (Act No.49 of
  1998) is repealed

49
ST(C41) Short title and commencement

• This Act is called the Insurance Amendment Act,
  2003 and comes into operation on a date fixed by
  State President by proclamation in the Gazette