Solvency Assessment and Management project

Towards the end of last year, the FSB informed us that it proposed to develop new solvency rules based on the principles of the Solvency II Directive adopted by the European Parliament sometime ago. The FSB has called this project the Solvency Assessment and Management Initiative and has proposed to have the legislation in place by 1 January 2014. We have recently been informed that the process will also include rewriting the Insurance Act. Clearly then, this project will be a massive one and will place considerable strain on our management and our members. For this reason, the SAIA Board has approved the appointment of a project manager who will be responsible for the project and we are hoping to make an appointment as soon as possible. The important issue regarding the solvency assessment and management project is that it will need to be adapted to South African conditions and will therefore involve complicated and difficult negotiations, as we do not believe that an EU directive can simply be foisted on the South African market without modification.

There are a number of other issues that SAIA and its working committees are dealing with, including transformation, the South African pool for the insurance of nuclear risks, the position of reinsurers in the South African market, a new industry data sharing initiative and lastly but most importantly the area of systemic risk and environmental issues all of which we are heavily involved in. As can be seen by this brief overview, there is a massive amount of work that will pose a real challenge for me, the SAIA Board, our management and all of our members who give unstintingly of their time and expertise in order to ensure that our voice is heard by the regulator and other Government departments. As I have said, there is a very big task ahead to deal with these various issues but I believe the foundations have been laid and we look forward to the challenge that faces us.

During November 2009, the Financial Services Board (FSB) advised the SAIA that it was in the process of developing a new solvency regime for the South African short- and long-term insurance industries, to be in line with international standards. This new regime will be called Solvency Assessment and Management (SAM).

The short-term insurance industry had already been involved in working with the FSB towards a revised capital regime for the short-term insurance industry, under the Financial Condition Reporting (FCR) banner. The FSB has advised that this work on FCR will be superseded by and incorporated into the SAM project.

The basis of the SAM regime will be the principles of the Solvency II directive, as adopted by the European parliament. This will be adapted to South Africa's specific circumstances where necessary.

As an overarching principle, the recommendations arising from the SAM project should meet the requirements of a third country equivalence assessment under Solvency II.

The Solvency II directive was adopted by the European parliament on 22 April 2009 and endorsed by the Council of Ministers on 5 May 2009, thereby concluding the legislative process for adoption. The implementation date for EU countries is October 2012.

The FSB aims to promote the soundness of insurance companies through the effective application of international regulatory and supervisory standards. In line with this objective, the FSB aims to introduce a solvency regime along the principles set out in the new Solvency II directive shortly after the date of Solvency II implementation in the EU.

Solvency II is based on three pillars:

Pillar I – Quantitative requirements, dealing with such issues as the valuation of assets and liabilities and the setting of capital requirements This can be based on a standardised model prescribed by the supervisor or an insurer's own internal model, approved by the supervisor
Pillar II – Qualitative requirements, including standards and guidance on governance, internal controls, risk management and supervisory processes.
Pillar III – Reporting and disclosure

Recognising the importance of this project, the SAIA Board has approved the appointment of a Project Manager to run this. For more information, email the newly appointed Project Manager, Nico Esterhuizen on This e-mail address is being protected from spambots. You need JavaScript enabled to view it (082 603 4161).

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The South African Insurance Association
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Registration No.1998/25543/08

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Solvency Assessment and Management project

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