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

Policyliabilities

Paid-upcapital

Non-distributablereserves

Otherliabilities

Distributablereserves

andpolicy and

other liabilities

Capitaladequacy

requirement(CAR)

Excessassets

Shareholders’assets

Assetscoveringcapital

adequacyrequirement

MinimumCAR

S29(Sound condition)S30(Cover)S31(Spread)

S34(Prohibitions)Schedule 3

S29(Sound condition)S30(Cover)S31(Spread)

S34(Prohibitions)Schedule 1

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DEFINITIONS LT(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

MISLEADING ADVERTISING MATERIAL LT(C3)S4

ST (C27)S4

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

7

NAME OF INSURER LT(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

REINSURANCE LT(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 registrations LT(C7)S18

ST(C31)S18

Currently insurers must inform Registrar of

Appointment; and

Terminations of directors and Managing Executive together with reasons for

appointment or termination

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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 SHARES LT(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

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(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 1998

Limitation 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 liabilities and capital adequacy requirement

Last sentence: be in a position to meet liabilities and capital adequacy requirement at 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] fair value [, as defined in the

regulations,] which when expressed as a percentage of the aggregate value of its liabilities and minimum capital adequacy requirement …, does not exceed the percentage specified in the regulations …

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(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)]

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(C15) S36(1) of Act 52 of 1998Returns to Registrar

Numbering of first subsection

22

LT(C16) S39

• Rectifies a textual error

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FREE CHOICE IN CERTAIN CIRCUMSTANCES LT(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

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CASH PREMIUMS LT(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 claimsno disclosure

reasonable insurer(court)(objective test)

• Materiality testinsurer 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] securities issued by a company incorporated in the Republic

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(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

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(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

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(C22) Sch 2 to Act 52 of 1998Method of calculating of value of

assets and liabilities

Repeal of Schedule 2

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(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

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(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

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(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

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• 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)

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(C31(a)) S23(a)(vi) of Act 53 of 1998

Reduction 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

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(C32) S25 of Act 53 of 1998 Limitation 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

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(C35)S53

As explained – clause 19 of LT

Materiality of misrepresentation

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(C36(a),(b),(c),(d),(e)) Sch 1 to Act 53 of 1998

Kinds 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