Chapter 2: Taxation and Supervision

Question 1

What does operating profit consist of?

Answer 1

• Underwriting profits
• Investment Income

Question 2

What are insurance companies regulated under?

Answer 2

The insurance act No 18 of 2017. The Reserve Bank is the prudential authority monitoring their adherence to the act

Question 3

What are the main acts insurers governing insurers?

Answer 3

• The Insurance Act
• The FAIS (Financial Advisory and Intermediary Services Act, No. 37 of 2002) act
• Protection of Personal Information Act (POPIA)
• National Credit Act
• SOlvency Assessment and Managment
• Financial Intelligence Centre Act (FICA)
• Companies Act (No. 71 of 2008)
• The NCA

Question 4

How is the National Credit Act Relevant for Insurers?

Question 5

Outline the difference between taxable Income and Operating profit

Answer 5

• Operating profit is calculated using IFRS
• Taxable income is calculated using tax laws which means certain items are excluded, added back, treated differently

Question 6

What must insurers and controlling companies maintain under Section 36 of the Insurance Act?

Answer 6

• Insurers: Eligible own funds >= MCR or SCR whichever higher
• Controlling companies: Group eligible funds >= group SCR

Question 7

When are insurers/controlling companies prohibited from paying dividends?

Answer 7

• If they fail or are likely to fail to meet Section 36 requirements or
• payment would cause non compliance with Section 36

Question 8

What must insurers/controlling companies do if they breach SCR/MCR or group SCR?

Answer 8

• Notify the Prudential Authority (PA) immediately .
• Disclose risks of failing to meet requirements within 3 months .

Question 9

What powers does the PA have under Section 36?

Answer 9

• Override insurer-calculated values (e.g., require independent valuations).
• Mandate changes to models, assumptions, or governance practices.

Question 10

When can the PA impose a capital add-on (Section 37)?

Answer 10

• Risk profile deviates from SCR assumptions, OR
• Governance framework violates Act requirements.
  Add-ons are reviewed annually and removed once deficiencies are fixed.

Question 11

What must governance frameworks under Section 30 include?

Answer 11

• Risk management , internal controls, and corporate governance systems.
• Proportional to the insurer’s/group’s risk profile.

Question 12

What standards enforce financial soundness and governance?

Answer 12

• FSIs (Financial Soundness Standards)
• GOIs (Governance & Operational Standards).

Question 13

What governance areas can the PA prescribe?

Answer 13

Board composition, risk management, internal controls, outsourcing, and control functions

Question 14

What are the purposes of solvency capital requirements ?

Answer 14

» Reduce risk of insurers failing to meet claims.
» Minimize policyholder losses if claims aren’t fully met.
» Provide supervisors early warning to intervene if capital drops.
» Promote confidence in financial stability of the insurance sector.