JUNE 2018 GROUP DISCUSSION SOME CURRENT AND PROPOSED LEGISLATION

1. JUNE 2018 GROUP DISCUSSIONSOME CURRENT AND PROPOSED LEGISLATION

2. GROUP DISCUSSION Discussion topics: 1. Cell Captives 2. Premium Collection and IGF 3 Credit Life 5. General

3. 1.Cell Captives

4. FSCA PROPOSAL Cell captive insurance business will need to be conducted under a dedicated insurance licence, and may not be combined with other forms of insurance business.

5. FSCA PROPOSAL FSCA PROPOSAL Cell captive insurance business will need to be conducted under a dedicated insurance licence, and may not be combined with other forms of insurance business. Confirmed. Now in the new Insurance Act

6. FSCA PROPOSAL FSCA PROPOSAL Writing of first-party business and third-party business within the same cell will be prohibited.

7. FSCA PROPOSAL FSCA PROPOSAL Writing of first-party business and third-party business within the same cell will be prohibited. Confirmed. Now in the new Insurance Act

8. FSCA PROPOSAL FSCA PROPOSAL Third-party cell captive insurance arrangements may only be entered into with a binder holder. The binder holder must either be an underwriting manager or a non-mandated intermediary in terms of an approved affinity scheme

9. FSCA PROPOSAL FSCA PROPOSAL Third-party cell captive insurance arrangements may only be entered into with a binder holder. The binder holder must either be an underwriting manager or a non-mandated intermediary in terms of an approved affinity scheme Confirmed. This will be addressed in a Conduct Standard applicable to all third party cell captive insurers setting out specific requirements and limitations relating to the ownership of cell structures

10. FSCA PROPOSAL To qualify as an affinity scheme (still to be confirmed) • The non-mandated intermediary must be a “tied agent” of the cell insurer; • An affinity relationship must exist between the main business of the cell owner and the insurance products offered by the cell; • The main business of the cell owner must not be the rendering of services as intermediary or the performance of any other function on behalf of an insurer. • The primary business of the cell owner must not be insurance business; and • The broader business relationship between the cell owner and the policyholder should result in an overall enhanced value proposition through the offering of suitable insurance products and should not compromise the delivery of fair outcomes to the policyholder.

11. FSCA PROPOSAL FSCA PROPOSAL Enhanced regulatory requirements will be put in place for third-party cell captive insurers with respect to adequate governance and risk management, including prescribed provisions in “shareholder” / cell agreements;

12. FSCA PROPOSAL FSCA PROPOSAL Enhanced regulatory requirements will be put in place for third-party cell captive insurers with respect to adequate governance and risk management, including prescribed provisions in “shareholder” / cell agreements; Confirmed. To be addressed in a Prudential Standard, the envisaged effective date being 1 January 2019.

13. FSCA PROPOSAL FSCA PROPOSAL Enhanced regulatory requirements will be put in place for third-party cell captive insurers with respect to financial soundness of individual cells including a minimum capital requirement of R1 million.

14. FSCA PROPOSAL FSCA PROPOSAL Enhanced regulatory requirements will be put in place for third-party cell captive insurers with respect to financial soundness of individual cells including a minimum capital requirement of R1 million. Addressed in Prudential Standard FSI 4 which defines the solvency capital requirement (SCR)

15. FSCA PROPOSAL FSCA PROPOSAL Enhanced regulatory requirements will be put in place for third-party cell captive insurers with respect to market conduct, including enhanced disclosure and restrictions on “white-labeling”.

16. FSCA PROPOSAL FSCA PROPOSAL Enhanced regulatory requirements will be put in place for third-party cell captive insurers with respect to market conduct, including enhanced disclosure and restrictions on “white-labeling”. Addressed in PPR Rule 10

17. FSCA PROPOSAL FSCA PROPOSAL Enhanced regulatory requirements will be put in place for third-party cell captive insurers with respect to reporting to the regulator on each cell arrangement.

18. FSCA PROPOSAL FSCA PROPOSAL Enhanced regulatory requirements will be put in place for third-party cell captive insurers with respect to reporting to the regulator on each cell arrangement. Addressed in the quarterly and annual information to be provided to the PA for supervisory purposes. The PA will issue a determination soon after 1 July 2018.

19. 2. PREMIUM COLLECTIONAND IGF

20. FSCA PROPOSAL BACKGROUND • The new insurance act passes the responsibility of premium collection to the insurer; • There will be a 2 year transition to convert currently registered insurers to the new insurance act; • On converting, insurers will be known as ‘licensed insurers’. Those not yet converted will be known as ‘registered’ insurers; • The responsibility for effecting the conversions is with the FSCA;

21. FSCA PROPOSAL BACKGROUND CONTINUED • Before any conversions take place, the PA and FSCA wish to align the current acts with the new act, which will be done in a number of ways, including the changing of the STIA and LTIA regulations; • Alignment will take place in ‘Tranches’, the regulation changes only expected to be implemented in the fourth quarter of 2018; • The new regulations embrace, inter alia, the new premium collection requirements; • The IGF ‘jumped the gun’ when publishing a circular stating that the IGF will be discontinued from 1st July 2018, the earliest date that we can expect is October 2018

22. FSCA PROPOSAL PREMIUM COLLECTION CHALLENGES • The insurer is required to specify • The functions that may be performed • The level and standards of service • The operational requirements • The purposes for which the premium may or may not be utilised • The type and frequency of reporting • The manner by which the insurer will monitor the dealers performance • The insurer is likely to ask for some form of collateral security; • A separate bank account may only contain monies collected for premium

23. FSCA PROPOSAL CIRCULAR FROM NATIONAL TREASURY, MAY 2018 • No fee for the collection of premium • Interest earned on premium received not addressed at this stage • No restriction to one collection agent per policy • Can collect premium with monies in terms of a credit agreement but must have a separate account ring-fenced for premium • Premium cannot be used for operational purposes • Binder and outsourced fees cannot be deducted from premium • A transitional period of 12 months will apply

24. 3. Credit Life

25. FSCA PROPOSAL CHALLENGES • The new insurance act prohibits short term insurers from providing credit life insurance; • Short term insurers have 60 days from1st July to engage with the prudential authority to present plans on how they intend to be compliant with the new act; • Short term insurers not presently registered must: • transfer the business to new carrier; or • discontinue the business; or • obtain a new life license. • Insurers will be allowed to continue offering the product until the license is converted

26. FSCA PROPOSAL MORE CHALLENGES • Commission will be restricted to 7.5%; • Dealers only registered for short term will have to apply for an exemption to obtain a license for B1A; • An application for exemption will not be granted on a blanket basis. Applications for exemption will cost R7,300 and approval is not guaranteed

27. Other stuff?Questions?