The progress on Financial Condition Reporting (FCR) seemed rather slow during 2008 compared with the many meetings and fervent debates of the previous two years in setting up the initial framework for FCR.

This work culminated in an issues paper on the proposed FCR Framework that was released by the Financial Services Board (FSB) for comment during December 2006. The comments received from industry players guided a small workgroup formed in 2007, comprising representatives from the FSB, the South African Insurance Association and the Actuarial Society of Soutah Africa in proposing ways to address the concerns raised.

The FSB, in considering these concerns, has resolved to follow a more pragmatic approach to the implementation of FCR allowing for the uniqueness of the South African short-term insurance industry to be taken into account – this was confirmed in a recent communication titled Update on Financial Condition Reporting, received from the FSB on 11 February 2009.

Further developments of the models

Prescribed Model

A recalibration exercise is being undertaken to simplify the Prescribed Model, to make it more understandable, thereby allowing for an increased user base. The exercise will also reduce the complexity of various technical calculations.

Internal Model

The Financial Services Board (FSB) is hoping to issue updated guidelines on Internal Models for industry comment during the first half of 2009 – incorporating international developments.

The FSB has recently visited a few insurers to assess the progress being made in the development of Internal Models – a report will be issued with the findings of these visits.

Certified Model

The Financial Services Board (FSB) has further confirmed that the Certified Model as described in the previous issues paper will probably be replaced by the concept of a “Partial” Internal Model.

The way forward

The Financial Services Board (FSB) envisages the release of a further issues paper for comment by all stakeholders once the recalibration is complete. The issues paper will highlight the proposed adjustments to the Prescribed Model, the Internal Model methodology and changes to insurance capital requirements.

Furthermore, a study to assess the potential impact of the introduction of the draft Financial Condition Reporting (FCR) proposals on the short-term insurance industry and on policyholders, prior to finalisation of the proposals, has been agreed to by National Treasury and the FSB.

The latest estimates from the FSB indicate a date for implementation of not before 2011.

The above update received from the FSB encourages insurers to enter into discussions with the FSB, during the process of developing FCR, with a view to including all stakeholders.

The SAIA Annual Review theme of “Collaboration” is well illustrated by the development and implementation process of FCR to date – all stakeholders have from the beginning contributed to the realisation of a principles-based system of risk management.

However, there is still much work to be done, and the impact of the current world financial crisis on the operations of insurers and insurance supervisors is yet to be properly debated and absorbed.

It is expected that governance issues will take centre stage and that through collaboration and the proper application of appropriate risk management principles, between business, auditors and regulators, the current financial crisis will be resolved.