Competition and Regulation in SADC: Insurance Services

Competition and Regulation in SADC: Insurance Services Presentation for the SADC Financial Services Liberalisation Forum, 1-2 July 2013, Johannesburg Presented by Christopher Smith, GFA Consulting Group

Outline • Structure of the SADC insurance industry • Competition and foreign participation in the SADC insurance industry • SADC countries’ GATS commitments in insurance services • SADC insurance services regulation and trade barriers in insurance services • Opportunities and challenges for regional liberalisation of insurance services in SADC Competition and Regulation in SADC: Insurance Services

1. Structure of the SADC insurance industry – number and types of operators Competition and Regulation in SADC: Insurance Services

1. Structure of the SADC insurance industry – market size and distribution of GPW (2010) Total SADC GPW in 2010: 56,975 USD millions Competition and Regulation in SADC: Insurance Services

1. Structure of the SADC insurance industry – insurance density and penetration Competition and Regulation in SADC: Insurance Services

1. Structure of the SADC insurance industry – microinsurance coverage Competition and Regulation in SADC: Insurance Services

1. Structure of the SADC insurance industry – life and non-life insurance distribution Countries with a larger life insurance subsector Countries with a larger non-life insurance subsector Non-life Insurance 25% Competition and Regulation in SADC: Insurance Services

2. Competition and foreign participation in the SADC insurance industry Competition and Regulation in SADC: Insurance Services

2. Competition and foreign participation in the SADC insurance industry • High concentration in most SADC insurance markets – often more pronounced in the life insurance subsector; • High involvement by foreign owned insurers in many SADC insurance markets; • Presence of strong regional insurance companies. Competition and Regulation in SADC: Insurance Services

Outline • Structure of the SADC insurance industry • Competition and foreign participation in the SADC insurance industry • SADC countries’ GATS commitments in insurance services • SADC insurance services regulation and trade barriers in insurance services • Opportunities and challenges for regional liberalisation of insurance services in SADC Competition and Regulation in SADC: Insurance Services

3. GATS commitments in insurance services Only 3 SADC Member States have made commitments in insurance services at the WTO level: Lesotho, Mauritius, South Africa. Competition and Regulation in SADC: Insurance Services

3. GATS commitments in insurance services Competition and Regulation in SADC: Insurance Services

3. GATS commitments in insurance services - conclusions • No restrictions on national treatment; • Specification of some market access limitations, mostly with regard to commercial presence (mode 3); • Market access under mode 1 (cross-border supply) is left unbound by all three countries; • GATS commitments do not provide a complete picture of the extent of liberalisation in SADC; • Many SADC countries have undergone significant reform of their financial services systems, but have not committed the reforms in GATS; • Lack of SADC countries’ participation in GATS negotiations • Indication that some countries may not want to bind themselves until they are certain that the reforms are successful. Competition and Regulation in SADC: Insurance Services

4. Regulation/ Trade Barriers in Insurance Services in SADC – sources used • Insurance Acts/Regulations and national legislation • World Bank Services Trade Restrictions Database (no data for Angola, Seychelles and Swaziland) • Other secondary sources (e.g. WTO Trade Policy Reviews, etc.) Competition and Regulation in SADC: Insurance Services

4. Trade Barriers in Insurance Services in SADC - Types of Barriers Competition and Regulation in SADC: Insurance Services

4. Trade Barriers in Insurance Services in SADC • The number of licenses available to applicants not limited in SADC countries; exception: D.R. Congo (state-owned monopoly SONAS) • Services transactions generally also not limited apart from mandatory cessation requirements to domestic reinsurers; • None of the jurisdictions has fixed quotas with regard to the set-up of branches or limitations on the number of insurance policies to be sold. Competition and Regulation in SADC: Insurance Services

4. Trade Barriers in Insurance Services in SADC • Many SADC countries apply Mode 4 restrictions referring to the ability of insurance companies to employ foreign staff – mostly residency and citizenship restrictions; • Domestic residency requirements: • Botswana: for principal officers; • Malawi: for the majority of the directors and the chairperson of the board; • Mauritius: Minimum of one member of the board of directors; • Mozambique: for >50% of the members of the board; • South Africa: for head office and public officer; • Zambia: for Chief Executive Officer and minimum of 50% of the board of directors. Competition and Regulation in SADC: Insurance Services

4. Trade Barriers in Insurance Services in SADC • Citizenship requirements: • Namibia: Managing director and a minimum of 50% of the members of the board have to be Namibian citizens resident in Namibia; • Swaziland: Minimum of 25% of the directors of a company have to be citizens of Swaziland; • Tanzania: One third of the members of the board must be Tanzanian citizens; • Zimbabwe: Minimum of 51% of the members of the board must be Zimbabwean citizens • Other limitations: • Labour market test requirement for foreigners (Malawi, Zimbabwe); • Mozambique: Quotas for foreign employees according to the size of the company • Malawi: Maximum of five top executive positions may be occupied by foreigners Competition and Regulation in SADC: Insurance Services

4. Trade Barriers in Insurance Services in SADC Establishment of a branch • The majority of SADC jurisdictions does not allow foreign insurers to establish a commercial presence through a branch – insurers must be locally incorporated under the Companies Act; • The two exceptions are: Mauritius and Mozambique; Mozambique requires the foreign insurer to demonstrate that he has at least five years of operational experience for the particular insurance product. Establishment of a subsidiary • The majority of SADC countries are open and do not impose any ownership restrictions on the foreign insurer; • Exceptions: D.R. Congo and Swaziland restrict establishment of foreign subsidiaries • Tanzania: foreign ownership limited to 66.7% • Zimbabwe: at least 51% of ownership has to be held by indigenous Zimbabweans. Competition and Regulation in SADC: Insurance Services

4. Trade Barriers in Insurance Services in SADC • Many SADC countries do not impose any barriers: Botswana, Lesotho, Malawi, Mozambique, Namibia, Seychelles, and Zambia all allow foreign investors to acquire domestic insurance companies without setting any limits on foreign ownership; • In some countries requirement for approval: • Mauritius: Approval by Financial Services Commission if acquiring significant interest in an insurer; • South Africa: Approval by Registrar when acquisition of 25% or more; • Angola: Approval by Ministry of Finance for foreign shareholding in excess of 50%; • Three countries limit foreign ownership: Swaziland (49%), Tanzania (66.7%) and Zimbabwe (49%) • SADC countries are more restrictive in the acquisition of domestic government- owned insurance companies: Namibia, South Africa, Tanzania and DRC do not allow this; Lesotho limits foreign ownership to 70%; Botswana and Zimbabwe do not allow foreigners to acquire controlling stakes. Competition and Regulation in SADC: Insurance Services

4. Trade Barriers in Insurance Services in SADC • Almost no National Treatment Limitations exist in the national legislations – domestic and foreign insurers are treated equally; • Two small exceptions: • Malawi: Foreign applicants seeking to obtain a license may not be exempted from solvency margin requirements, whereas this may be possible for domestic applicants; • Mauritius: branches of foreign insurers may not invest more than 10% of the total assets of the insurer in commodities or corporations whose shares are listed on a licensed exchange in Mauritius or certain other specified exchanges. Competition and Regulation in SADC: Insurance Services

4. Trade Barriers in Insurance Services in SADC • Four countries prescribe their insurers to cede a certain amount of their business with a predetermined insurer: • Tanzania: Minimum of 5% of the portfolio with the African Reinsurance Corporation (Africa-Re); another 10% with the Preferential Trade Area reinsurance Company (ZEP-Re); • Mauritius: Minimum of 5% with Africa-Re; • Namibia: Minimum of 20% with Namib-Re; • Zimbabwe: 100% with domestic reinsurer, although the Insurance commissioner my allow excess insurance to be insured outside Zimbabwe in the case of insufficient domestic capacity. Competition and Regulation in SADC: Insurance Services

4. Trade Barriers in Insurance Services in SADC • Foreign insurance companies face barriers in some SADC countries, mostly with regard to foreign exchange regulations; • In Lesotho, Malawi, Mozambique, and Zimbabwe repatriation of earnings requires the prior approval of the Central Bank; • In Namibia, repatriation of dividends is subject to a withholding tax of 10%. Competition and Regulation in SADC: Insurance Services

4. Trade Barriers in Insurance Services in SADC • Minimum share capital requirements differ widely among SADC member states. Competition and Regulation in SADC: Insurance Services

4. Trade Barriers in Insurance Services in SADC • Many SADC countries restrict the ability of local consumers to access insurance services (cross border) from foreign providers located outside the country • Mostly the case for short-term and long-term insurance products; • More openness for reinsurance contracts across the border; • Often requirement to demonstrate that the specific insurance product is locally not available – practical application is unclear; • Tanzania and Zimbabwe require approval by the regulating authority for cross-border transactions; • Zimbabwe and Mozambique impose restrictions on the value and the sector receiving the service; • South Africa prohibits the solicitation of insurance by foreign non-registered insurers. Competition and Regulation in SADC: Insurance Services

4. Trade Barriers in Insurance Services in SADC - Evidence of Barriers in SADC Competition and Regulation in SADC: Insurance Services

5. Opportunities and challenges for regional liberalisation of insurance services in SADC Opportunities • Large foreign insurers might be able to absorb risks which domestic insurers are unable or unwilling to take on • Competition from new entrants might lead to better products and services and lower prices • New entrants might also contribute to the transfer of technical and industry know-how to local providers Challenges/concerns • Foreign-based firms may create regulatory challenges – complex management structures, jurisdictional overlaps, new products etc. • Admission of larger insurers could result in anti-competitive practices, including predatory pricing • More intensive competition could result in selective marketing to high-value clients while lower-value clients are ignored. Competition and Regulation in SADC: Insurance Services

5. Opportunities and challenges for regional liberalisation of insurance services in SADC SADC - key policy issues and questions: • Insurance penetration is generally low; and market concentration and foreign participation is generally high • Barriers to entry do not seem, in law, to be particularly onerous • Why does the SACU insurance market seem to be that much more mature that that of the rest of SADC (excl. Mauritius)? • Is it possible and desirable to extend some of the regulatory features of the SACU insurance market to the rest of SADC? • Could regional harmonisation in insurance regulation contribute to some ‘convergence’ in coverage? • Concluding a reasonably comprehensive and consistent agreement in this sector seems possible Competition and Regulation in SADC: Insurance Services

5. Opportunities and challenges for regional liberalisation of insurance services in SADC SADC - key scheduling issues and questions: • Despite the emergence of a number of large and credible regional companies, they are generally required to incorporate in all countries to do business • Is regional cross-border trade in any insurance products permissible / possible? • Might it be possible to develop a regional prudential framework for the establishment of branch offices, which does not put policy holders at risk? • Mandatory prescriptions for domestic reinsurance • Could there be benefits from opening this cession to regional reinsurance firms? • Residency & citizenship requirements for senior officials (differ markedly by country) • Does this cause problems for regional insurance companies? What is necessary / optimal for regulatory supervision? • Many of the potential barriers to trade are couched in prudential regulations • Are SADC prudential regulations in line with international best practice? • Is it possible & desirable for SADC member states to harmonise certain aspects of prudential regulation in order to facilitate intra-regional trade & investment? Competition and Regulation in SADC: Insurance Services

Thank you for your attention. Competition and Regulation in SADC: Insurance Services

Competition and Regulation in SADC: Insurance Services