Competition and Regulation in SADC: Insurance Services

19.04.2023

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

19.04.2023 2Competition and Regulation in SADC: Insurance Services

Outline

1. Structure of the SADC insurance industry

2. Competition and foreign participation in the SADC insurance industry

3. SADC countries’ GATS commitments in insurance services

4. SADC insurance services regulation and trade barriers in insurance services

5. Opportunities and challenges for regional liberalisation of insurance services in SADC

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1. Structure of the SADC insurance industry – number and types of operators


Number of licensed insurance companies (2010)

Number of licensed insurance brokers (2010)

Number of licensed insurance agents (2010)

Number of licensed reinsurance companies (2010)

Angola 9 2.4% 16 104 1

Botswana 18 4.9% 42 377 2

D.R. Congo (1) - n.a. n.a. n.a.

Lesotho 7 1.9% 11 199 0

Malawi 12 3.3% 10 24 1

Mauritius 21 5.7% 24 180 0

Mozambique 8 2.2% 35 282 1

Namibia 17 4.6% 105 2,610 1

Seychelles (7) - (10) (40) (0)

South Africa 182 49.5% 12,094 194,124 12

Swaziland 9 2.4% 31 91 0

Tanzania 26 7.1% 72 190 1

Zambia 14 3.8% 46 254 2

Zimbabwe 45 12.2% 27 629 10

SADC Total 368 100% 12,513 198,960 31

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1. Structure of the SADC insurance industry – market size and distribution of GPW (2010)

South Africa93.71%

Rest6.29%


Botswana; 0.75%

Lesotho; 0.17%

Malawi; 0.16%

Mauritius; 0.97%

Mozambique; 0.21%

Namibia; 1.70%

Swaziland; 0.15%

Tanzania; 0.34%

Zambia; 0.39%

Zimbabwe; 0.36%

6,29% of GPW:

3,582USD

millions

Total SADC GPW in 2010:

56,975 USD millions

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1. Structure of the SADC insurance industry – insurance density and penetration


Growth of total GPW over last 5 years (until 2010)

Insurance penetration ratio (GPW contribution to GDP) (2010)

Insurance density (GPW per capita) in Dollar units (2010)

Angola 61.30% 1.00% 43.0

Botswana 48.58% 2.80% 236.9

D.R. Congo n.a. n.a. n.a.

Lesotho 53.58% 4.45% 50.1

Malawi 81.65% 1.65% 6.5

Mauritius 76.86% 5.86% 433.9

Mozambique 96.07% 1.26% 5.3

Namibia 68.92% 7.98% 426.0

Seychelles n.a. n.a. n.a.

South Africa 38.84% 19.30% 1,070.0

Swaziland n.a. 2.12% 83.0

Tanzania 117.94% 0.89% 4.5

Zambia 99.38% 1.38% 17.1

Zimbabwe n.a. 3.01% 15.0

SADC Average 40.63% 11.76% 211.0

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1. Structure of the SADC insurance industry – microinsurance coverage


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1. Structure of the SADC insurance industry – life and non-life insurance distribution

SADC Total

Market

Life Insurance

75%


67%

33%

Botswana

69%31%

Lesotho

68%

32%

Mauritius

69%31%

Namibia

77%

23%

South Africa

5%

95%

Angola

35%65%

Malawi

16%

84%

Mozambique

42%

58%

Swaziland

22%

78%

Zambia

42%

58%

Zimbabwe11%

89%

Tanzania

Countries with a larger life insurance subsector

Countries with a larger non-life insurance subsector

Non-life Insurance

25%

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SADC countries No. of companies

Market concentration:(Market share (GPW) of largest 2 companies)

Foreign Participation:(GPW written by majority foreign-owned companies)

Comments

Botswana Life 7 86% (2010) 80% – 90% • very concentrated: Botswana Life 85.6% GPW• high SA/ZIM ownership

General 11 49% (2010) 80% – 90% • less concentrated• SA/ZIM oligopoly

D.R. Congo Life 1 100% (2009) 0% • state-owned monopoly provider: Société Nationale d’Assurance” (SONAS)• recent efforts towards liberalis.

General 1 100% (2009) 0%

Lesotho Life 4 (+1)

96% (2007) 80% - 90% • very concentrated: Metropolitan Lesotho 85% GPW

General 1 (+1)

100% (2007) ~ 50% • very concentrated• Leading insurer 50% gov.-owned


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Comments

Malawi Life 4 84% (2011) 80% - 90% • foreign-owned Old Mutual and NICO Life are leading companies

General 7 56% (2011) 40% - 60% • NICO General Insurance (foreign-owned) market leader (37%)

Mauritius Life 15 71% (2011) • SICOM and BAI market leaders

General 14 46% (2011) • Mauritius Union Assurance (MUA) and SWAN market leaders

Mozambique Life/General

2 65% (2007) 40% - 60% • EMOSE (state-owned) and SIM (mixed) market leaders

General 5 40% - 60% • EMOSE and SIM market leaders;• Global Alliance third (fully foreign-owned)

Namibia Life 17

General 13 75% (3 largest; 2010)

70% - 90% • Three largest insurers are South African subsidiaries


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Comments

Seychelles Domestic 4 high 20% - 50% • SACOS Life, SACOS Insurance (government-owned), H. Savy Ins. (mixed owned)

Non-dom. 3 100% (2011)

Swaziland Life 6 70% (2010/11) 90% - 100% • SRIC and Old Mutual market leaders (both foreign owned)• 9 of 10 companies owned by SA parent firms/shareholders; one ZIM

General 4 100% (2010/11) • SRIC: 99% market share alone

Tanzania Life 2 (+4) 83% (2010) 40% - 60% • African Life and NIC (both mixed ownership) market leaders;

General 20 24% (2010) 40% - 60% • less concentrated than life subsector


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Comments

Zimbabwe Life 9 66% (2012) <50% • Old Mutual (foreign-owned) market leader (46%)

General 27 First seven insurers account for 72%

<50% • oligopoly market structure• Majority of companies owned by Zimbabweans


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.

19.04.2023 12Competition and Regulation in SADC: Insurance Services

Outline

1. Structure of the SADC insurance industry


3. SADC countries’ GATS commitments in insurance services

4. SADC insurance services regulation and trade barriers in insurance services


19.04.2023 13

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.

Lesotho Mode Market Access National Treatment

07.A. All insurance and insurance related services(a) Direct Life

Insurance (CPC 8121 +)

(b) Non-life insurance services (CPC 8129+)

(c) Reinsurance and Retrocession (CPC 81299 +)

1 Unbound Unbound

2 None None

3 • Requirement to be incorporated as a public company• Requirement for written approval by Registrar of Companies for acquisition of 25% or more of ownership in an insurer

None

4 Unbound, except as indicated in the horizontal section

Unbound, except as indicated in the horizontal section

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Mauritius Mode Market Access National Treatment

07.A. a. Direct (incl. Co-insurance)(a) Direct Insurance

Life and Non-Life

1 Unbound None

2 None, except for assets and insurance which are compulsory

None

3 None None

4 Unbound, except horizontal section Unbound, except horizontal section

07.A. All insurance and Insurance-related Services

(b) Reinsurance and retrocession

1 None, except 5% compulsory reinsurance with African-Re Corp.

None


None


None


(c) Insurance intermediation comprising Agents and Brokers

1 Must act only for insurers registered in Mauritius and must be registered with commercial presence in Mauritius

None

2 None, except for assets and insurance which are compulsory

None

3 Must act only for insurers registered in Mauritius


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South Africa Mode Market Access National Treatment

07.A. All insurance and insurance-related services(a) Direct Life

Insurance (CPC 8121 +)

(b) Direct non-life insurance services (CPC 8129+)

(c) Reinsurance and Retrocession (CPC 81299 +)

(d) Insurance intermediation and auxiliary services (CPC 8140)

1 Unbound Unbound

2 None None

3 • Requirement to be incorporated as a public company• Requirement for written approval by Registrar of Companies for acquisition of 25% or more of ownership in an insurer• Executive chairman, public officer and the majority of directors must be resident in South Africa• Life insurance actuaries must be resident in South Africa

None

4 Unbound, except as indicated in the horizontal section

Unbound, except as indicated in the horizontal section

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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.


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4. Regulation/ Trade Barriers in Insurance Services in SADC – sources used

1. Insurance Acts/Regulations and national legislation

2. World Bank Services Trade Restrictions Database (no data for Angola, Seychelles and Swaziland)

3. Other secondary sources (e.g. WTO Trade Policy Reviews, etc.)


Country Year of the Insurance Act in use

Country Year of the Insurance Act in use

Angola 2010 Namibia 1998

Botswana 2005 Seychelles 2008

D.R. Congo 1966 South Africa 1998

Lesotho 1976 Swaziland 2005

Malawi 2010 Tanzania 2009

Mauritius 2005 Zambia 2005

Mozambique 2003 Zimbabwe 2004

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4. Trade Barriers in Insurance Services in SADC - Types of Barriers

1) Market Access Limitations

a) Limitations on the number of service suppliers

b) Limitations on the total value of services transactions or assets

c) Limitations on the total number services operations / quantity of service output

d) Limitations on the number of natural persons

e) Restrictions on the type of legal entity or joint venture• Establishment of a branch• Establishment of a subsidiary

f) Limitations on the participation of foreign capital


2) National Treatment Limitations

a) Discriminatory measures in licensing

b) Other discriminatory measures

3) Other restrictions

a) Mandatory cessation requirements to domestic reinsurers

b) Limitations on the repatriation of earnings

c) Minimum capital requirements for licensing

d) Purchase of insurance from suppliers located outside the host country

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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.






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• 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.




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• 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



d) Limitations on the number of natural persons (continued)

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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.




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• 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.




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• 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.





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• 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.


3) Other Restrictions


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• 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%.




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• Minimum share capital requirements differ widely among SADC member states.




Country Life Insurers(2010)

Non-Life Insurers(2010)

Country Life Insurers(2010)

Non-Life Insurers(2010)

Angola 8,000,000 6,000,000 Namibia 150,200 15,000

Botswana 310,100 310,100 Seychelles

D.R. Congo South Africa 1,507,700 753,900

Lesotho 7,900 8,900 Swaziland 285,700 285,700

Malawi 497,300 331,600 Tanzania 675,900 675,900

Mauritius Zambia 208,300 208,300

Mozambique 2,030,300 1,000,000 Zimbabwe 500,000 300,000

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• 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.



b) Purchase of insurance from insurers located outside the host country (cross-border)

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4. Trade Barriers in Insurance Services in SADC - Evidence of Barriers in SADC












3) Other restrictions




d) Purchase of insurance from suppliers located outside the host country

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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.


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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


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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?


19.04.2023 33

Thank you for your attention.


Competition and Regulation in SADC: Insurance Services

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