Introduction to the Insurance Bill

1. Recapping process and focus on Insurance Bill clauses Presentation to the Standing Committee on Finance Introduction to the Insurance Bill National Treasury | 22 August 2017 September 2016

2. NT, FSB, SARB officials • National Treasury (NT) • Ismail Momoniat • Reshma Sheoraj • Jeannine Bednar-Giyose • Dino Lazaridis • Financial Services Board (FSB) • Jo-Ann Ferreira • Caroline Da Silva • Suzette Vogelsang • Tendani Mathobo • Prudential Authority (PA) • Janet Terblanche • MashuduMabogo

3. Introduction - Recap of process • NT thanks the Committee for efforts made to date in considering the Insurance Bill • Extensive consultation process followed, to summarise process : • Cabinet approved release of Bill for comment 15 April 2015 • NT releases Bill for public comment 17 April 2015 • Cabinet approves Bill 4 November 2015 • Minister of Finance tables Bill in Parliament 28 January 2016 • SCOF invitation for public comments 15 December 2016 • SCOF briefing on the Bill 24 January 2017 • SCOF public hearings on the Bill 7 February 2017 • 10 May 2017 NT responds to public comment and proposes changes to the Bill • NT background presentations circulated again for reference

4. Introduction – Recap of process contd… • To recap - detailed response to public comments made during public hearings on the Bill submitted to Committee • Comments focused broadly on transformation of insurance sector, financial inclusion, cost of regulation, certain powers of the regulator, technical amendments & alignment with the Financial Sector Regulation Bill • Comment matrix circulated again for background • NT cognisant of broader transformation issues raised and requests that transformation clauses in the Bill be considered after the transformation hearing scheduled in Parliament on 6 September 2017 in order to focus on remaining aspects of the Bill • Issues raised - ownership, procurement, management control • NT/FSB/SARB meetings with black owned insurers and panel beaters post public hearings • Dedicated meetings with SAIA and ASISA boards to develop transformation work plans for insurance sector in anticipation of Fin Sector Summit

5. Documents available to Committee • NT presentation to Committee 22 August 2017 • NT background presentations to Committee - 24 January 2017 and 10 May 2017 • Detailed matrix responding to public comments presented on 10 May 2017 • Proposed revised Bill, taking into account public comments presented on 10 May 2017 • NT list of amendments to Insurance Bill as tabled

6. Bill is part of Phase 2 of Twin Peaks reforms 2015 2016 2017

7. Twin Peaks Reforms – how Insurance Act fits in

8. Background to the Bill • Builds on the Twin Peaks model of financial regulation envisaged in the FSRB in respect of prudential supervision • Provides a consolidated legal framework for the prudential supervision of insurers as envisaged in the FSRA • Gives effect to the mandate & functions of the PA as articulated in the FSRA • Insurance Bill will: • Promote financial inclusion & financial sector transformation • Introduces a microinsurance regulatory framework • Enhance safety and soundness of insurers • Help maintain financial stability through introducing a framework for insurance group supervision • Facilitate alignment with international standards (adapted to South African circumstances) in accordance with South Africa’s G20 commitments

9. Background to the Bill • Proportionality & progressive realisation • The Bill entrenches the principle of proportionality & progressive realisation - regulatory requirements will be applied in a manner which is proportionate to the nature, scale and complexity of the risks inherent in the business of an insurer (and reinsurer), so that requirements imposed on small and medium- size insurers are not too onerous • Compliance with requirements may be achieved over time • Framework legislation • It is enabling or empowering (and should be in respect of the new solvency regime) • It contains the fundamental policy or underlying principles of legislation that are unlikely to change over time

10. Background to the Bill • It provides for the basic or minimum issues and powers necessary to regulate insurers, and delegates the power to make secondary legislation and other authority to implement and enforce the Bill to the PA • The delegation of the power to make secondary legislation and other authority to implement and enforce the Bill is important to allow for or facilitate— • expert input into its design and technical language to be used in its wording • flexibility in responding to events, emergencies and industry developments • Oversight by Parliament of secondary legislation

11. Alignment of Bill with FSRA • Bill is aligned to the FSRA • A few additional amendments have been proposed to the Committee on 10 May 2017 – • ensure alignment with the FSRA including transformation objectives • clarify potential ambiguities identified post tabling of the Bill • to give effect to public comments

12. Structure of Bill - Chapter Champions • Chapter 1: Interpretation & objective of Bill – Jo-Ann Ferreria • Chapter 2: Overarching framework for conducting insurance business & insurance group business - Jo-Ann Ferreria • Chapter 3: Key persons & significant owners – Tendani Mathobo • Chapter 4: Licensing - Caroline Da Silva • Chapter 5: Governance – Caroline Da Silva • Chapter 6: Financial soundness – Suzette Vogelsang • Chapter 7: Reporting & public disclosure requirements- Reshma Sheoraj • Chapter 8: Transfer of business & significant transactions – Reshma Sheoraj • Chapter 9: Resolution – Jeannine Bednar-Giyose • Chapter 10: Administration of the Bill – Tendani Matobo • Chapter 11: General provisions- Jo-Ann Ferreria

13. Chapter 1: Interpretation & Objective • Definitions • General interpretation • Objective • promote the maintenance of a fair, safe and stable insurance market for the benefit and protection of policyholders, by establishing a legal framework for the prudential regulation and supervision of insurers and insurance groups that— • facilitates the monitoring and the preservation of the safety and soundness of insurers • enhances the protection of policyholders and potential policyholders • increases access to insurance for all South Africans • promotes transformation of the insurance sector • contributes to the stability of the financial system in general

14. Chapter 2: Insurance business • PART 1: General principles • PART 2: Insurance business and other business of insurers • A licence is required to conduct insurance business in SA • States what constitutes conducting insurance business in SA • Places limitations on insurance business outside SA and other business in SA or outside SA without PA’s approval • Registrar may include or exclude specific types of business from Act, subject to certain considerations

15. Chapter 2: Insurance business • PART 3: Branches of foreign reinsurers and Lloyd’s • Foreign reinsurer may establish a branch if licensed • Lloyd’s may conduct business – deemed to be licensed • Subject to requirements: • Trusts • Representative offices • All requirements of Bill apply, unless specifically stated otherwise • Specific provisions regarding claims against branches & Lloyd’s underwriters

16. Chapter 2: Insurance business • PART 4: Insurance Groups • PA must determine, per group, the scope of the group that is subject to group supervision • Controlling company responsible for meeting regulatory requirements in respect of group (similar to those that apply to insurers) • PA may amend scope of the group that is subject to group supervision, under certain circumstances

17. Chapter 3: Key persons & significant owners • PART 1 & 4: Fit & proper requirements • PA may prescribe fit and proper requirements for key persons and significant owners • Key persons: PA may direct insurer or controlling company to take certain actions, including termination of appointment • [Key persons are defined as a director, senior manager, head of a control function, auditor, representative & trustee of Lloyd’s / foreign reinsurer branch] • Significant owners: If found not to be fit & proper, PA may direct significant owner to take certain actions, including disposal of part or full shareholding in certain circumstances

18. Chapter 3: Key persons & significant owners • PART 2: Appointments and terminations of key persons • Appointment of directors, auditor, representatives and trustees must be approved • Appointment of senior manager and head of a control function must be notified • Termination of appointments must be notified & must provide information

19. Chapter 3: Key persons & significant owners • PART 3: Changes in control of insurer / insurance group • Builds on requirements of the FSRB • Changes in control require PA’s approval & all significant owners to be approved • If control by significant owner is found to be prejudicial to insurer/ controlling company / policyholders, PA may direct significant owner to take certain actions, including disposal of part or full shareholding in certain circumstances • If approvals not secured, transaction and any dividends paid are void • CC & Tribunal may not approve merger without Registrar’s agreement • PA may oust jurisdiction of CC & Tribunal if in the public interest • Approval required for shares to be registered in name of a person other than beneficial owner – may prescribe circumstances under which approval is not required

20. Chapter 4: Licensing • Micro-insurers: profit or non-profit company (i.e. public or private company), cooperative or established under dedicated Act • Branches: External company • Lloyd’s: deemed to be licensed • Other insurers: public company & cooperative • No composite insurers – except for microinsurers • Licensed for specific classes & sub-classes • May provide rider benefits as prescribed • Requirements for licensing stated & additional requirements may be prescribed – transformation entrenched

21. Chapter 4: Licensing contd.. • Consultation with other financial sector regulators required • Application to be dealt with within 120 days or longer agreed period • Conditions may be imposed • Progressive realisation • Cell captive insurance may only be conducted through a separate licensed legal entity • Conditions may be varied • Licence may be suspended • Licence may be withdrawn

22. Chapter 5: Governance framework • Must have & maintain governance framework • Sets out matters that may be prescribed in respect of framework • PA may require compliance to be demonstrated • Sets out processes and plans required when insurer or controlling company fails to maintain framework • Empowers PA to direct insurer or controlling company to to effet improvements to governance framework • Sets out requirements for auditors • Sets out requirements for audit committee • Imposes additional governance requirements on branches & Lloyd’s – representatives and representative offices

23. Chapter 6: Financial Soundness • Must maintain financially sound condition • What constitutes a financially sound condition specified • Sets out matters that may be prescribed in respect of framework

24. Chapter 6: Financial Soundness • Sets out circumstances under which capital add-on may be imposed • Requires approval in respect of certain matters relating to capital and securities • Registrar may require compliance to be demonstrated • Sets out processes and plans required when insurer fails to maintain framework • Imposes additional requirements on branches & Lloyd’s – trust and trustees

25. Chapter 7: Reporting & public disclosures • Requires disclosures on beneficial interests (insurer and holder of interest) • Requires returns • Requires annual disclosures to the public • Requires submission of annual financial statements and accounting requirements • Imposes auditing requirements • Requires branches and Lloyd’s to report changes in home jurisdiction legislation • PA may require additional information or direct independent verification

26. Chapter 8: Transfers & other transactions • Approval of transfers and other fundamental transactions required (mergers, reorganisations, take-overs) • Approval of significant acquisitions and disposals required • Notification of all other acquisitions and disposals required

27. Chapter 9: Resolution • Refers to statutory manager & curatorship under existing legislation • States powers of curator (still Court approved) • Specifies requirements relating to business rescue and winding-up - Registrar must be aware & may intervene; may initiate • [Broader resolution framework reform will require alignment. Alignment to be achieved through consequential amendments under the proposed Resolution Bill] • [Chapter somewhat longer as it impacts on other Acts]

28. Chapter 10: Administration • PART 1: Applications & notifications • PART 2: Powers and functions of the PA • Aligned to FSRA • Additional requirements • Prudential Standards • Publications by Registrar • Equivalence in relation to branches • Exemptions (developmental and transformation considerations) • Unlicensed insurance business • Penalties for late submission of information • Offences – limited to situations where other remedies are limited relating to group supervision

29. Chapter 11: General provisions • Regulations – demarcation • Special exemptions for certain insurers not to be public company • Consequential amendments to LTIA and STIA • Transitional provisions to facilitate implementation • Re-licensing – 2 years • Short title and commencement

30. Schedules • SCHEDULE 1: Consequential amendments • SCHEDULE 2: Classes and sub-classes • More granular authorisation classes and sub-classes • Specific authorisation for inward reinsurance • Consequences for group policies • SCHEDULE 3: Transitional provisions