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PRESENTATION TO THE SELECT COMMITTEE ON FINANCE

PRESENTATION TO THE SELECT COMMITTEE ON FINANCE. Arrangement of sections LT(C1) ST(24).  The arrangement of sections in the Long-term and Short-term Insurance Acts are amended. (C2) S1 of Act 52 of 1998 Definitions.  capital adequacy requirement  fair value  linked liabilities

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PRESENTATION TO THE SELECT COMMITTEE ON FINANCE

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  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 Shareholders’ assets Excess 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(Prohibitions) Schedule 3 S29(Sound condition) S30(Cover) S31(Spread) S34(Prohibitions) Schedule 1 Other liabilities

  5. DEFINITIONSLT(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. 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 MISLEADING ADVERTISING MATERIALLT(C3)S4 ST (C27)S4

  7. NAME OF INSURERLT(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. REINSURANCELT(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 registrationsLT(C7)S18ST(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 SHARESLT(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 liabilitiesand capital adequacy requirement  Last sentence: be in a position to meet liabilitiesand capital adequacy requirementat 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] fairvalue [, as defined in the regulations,] which when expressed as a percentage of the aggregate value of its liabilitiesand 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 CIRCUMSTANCESLT(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 PREMIUMSLT(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] securitiesissued 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)  “Lloyd’s underwriter” – means an underwriter or non-underwriting member of Lloyd’s  “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 1998Limitation 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

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