FSB gives insurers more time on new solvency rules

THE Financial Services Board (FSB) has delayed the implementation of costly new solvency rules for insurance companies from 2015 to 2016 as the board continues to battle with the full complexity of streamlining the industry.

The delay occurs at the same time global regulators are pushing out their plans due to squabbling over the finer details of the changes. Insurance companies in SA have complained that the changes could cost them anything from R25m to hundreds of millions of rand, with continuing expenses likely to be about 5% of their cost base.

Pan-European solvency changes, called Solvency 2, provided a foundation for the local regime, but reported conflict between Germany and France has pushed out the implementation of those rules to 2016. The rules in SA, under the Solvency Assessment and Management (SAM) regime, are being adapted for local conditions and have entailed numerous technical discussions and reports with the industry, now entering their third phase.

SA’s long-term insurance industry has R1.74-trillion in assets under management.

The FSB’s head of SAM, Ian Marshall, says while uncertainty around development had led to the delay, it is now time to “break the developmental uncertainty”.

SAM will require companies to hold regulatory capital in line with their risks, while they would need to have proper risk management and governance structures in place. Risks would also need to be “communicated appropriately”.

“The longer development time is for fine-tuning. We will make big decisions on what the legislation will look like this year,” Mr Marshall told the Association for Savings and Investment conference in Durban yesterday.

Old Mutual’s CE for emerging markets, Ralph Mupita, said the South African industry had remained stable thanks to regulations such as the National Credit Act, but warned the high regulation costs needed to be weighed. He said onceoff costs for adopting new insurance regulations were likely to be as high as 10% of the total cost base, while continuing costs could be as much as 5% of the total cost base.

“SAM is a good thing for all stakeholders, but a balance must be struck over its objectives and managing its costs,” Liberty Life executive David Jewell said. “I am quite encouraged by the approach taken to date, as implementation costs have been taken seriously.”

But he called for the changes to add value rather than just adding to the regulatory load.

Actuarial Society of SA CEO Mike McDougall said SAM was a huge investment in “time, effort and money”. It may not prevent an insolvency, but will prevent an “unmanaged insolvency”, he said.