Regulation Flashcards
Describe the ORSA
ORSA is defined as the entirety of the processes and procedures employed to identify, assess, monitor, manage and report the long and short term risks an insurance undertaking may face and determine the own funds to maintain solvency at all times and sufficient to meet business strategy over long time horizon and range of scenarios
Maintenance of the risk management system, demonstration of the embedding of the ORSA, forward looking capital planning and management and emerging risk management is evaluated via the ORSA process, outcomes of which documented in ORSA report.
Under ORSA process, insures are required to conduct at least annually and at any instance when there is a material change in insurers risk profile, a self assessment of their risks and level of solvency to cushion risks
To fulfil its function in the assessment risks, ORSA should include at least a 3 year capital projection, and relevant key performance and key risks indicators consistent, with economic scenario and growth assumptions made by board.
ORSA, is an ongoing process, although a report is required at least annually for supervisor, within 2 weeks of board approval
APN106 sets out the requirements of HAF in ORSA
Describe the SRP
PA will use SRP to assess the ability of an insurers system of governance to identify, assess, monitor and manage the risks and potential risks it faces.
SRP considers an insurers: System of governance and risk assessment/ including ORSA Technical provisions Capital requirements Investment Rules Quality and Quantity of Own Funds Use of full or partial internal models
Regulator may compel insurer to remedy any deficiencies, identified from SRP. Goal to establish greater confidence in overall solvency. In exceptional circumstances, a capital add is required until weakness has been remedied.
Transfer of liabilities
- Sections 50 and 51 of insurance act with GOI6, deal with amalgamation, demutualization, or transfer if life business, as well as acquisitions or disposals.
- Any Material transaction to be approved by PA. Will usually require an independent actuary to report
- APN 108(Independent actuary in transfers) and 109(Takeovers)
Section 46 of Long term insurance act- Actuarial soundness
Long term insurer shall not :
• Enter into any particular kind of long term policy unless the statutory actuary is satisfied that the premiums, benefits and other values are actuarially sound
* Actuarial soundness does not relate to absolute profitability e.g. a loss leader, but must not new business volumes must not jeopardize the solvency of the insurer
• Make a distinction between premiums, benefits and other values of different long term policies unless the statutory actuary is satisfied that the distinction is actuarially justified
• Award a bonus or similar benefit to policyholder unless it is done in accordance with PPFM and statutory actuary is satisfied that it is actuarially sound and there is surplus available for this purpose.
PPFM, means a statement approved by the board of directors of the long term insurer, setting out the discretion of the board and parameters in which discretion can be exercised in awarding bonus or similar benefit.
Describe Regulation 3A
Applicable to all risk policies
Applicable to all investment written before 1 Jan 2009
In event, of early lapse or surrender, within 2 years of recurring premium policies, company would have to reverse commission. The scale that reflects the maximum commission to be paid starts at nil for duration of 6 months or less and increases to 100% at the end of the years
Describe Regulation 3B
Applicable to all investment policies written on or after 1 Jan 2009, read with regulation 5
- Maximum permitted overall nominal rate of commission will be 5% of recurring premium, which may be split into an upfront discounted portion and ongoing undiscounted portion. Maximum of 50% upfront. Balance paid over term of policy.
- Max commission on single premium remain at 3%
- Applicable to all single/recurring premium policies and part of policy to which separate investment portion can be identified
- Commission on funeral/assistance business that is an investment policy is also capped
- If discounted commission amounts to less than R400, insurer may pay a larger portion upfront up to R400
- Should premiums stop or decrease, other than due to death, health event, disability within first 5 years, unearned discounted portion reverts back
- Subject to conditions, the policyholder may redirect premiums to another intermediary during life of policy
Describe Regulation 5B
Regulation5B
- Effective 1 Jan 2009
- Minimum value payable after contractual change is 85% of investment account, with fixed ran deduction, should change take place in first year
- Minimum proportions to be increased stepwise to reach 100% at midpoint of policy anniversary, at a minimum of 5 years and maximum of 10 years
- May deduct at fixed charge of maximum of R300 for change
- Always subject to a sub min of 70% of investment value before change
- Written disclosure requirements : must disclose charges in event of contractual change to prospective clients, in policyholder summary and annual statements to policyholders.
Describe the 5 year rule
Limits the extent to which surrender benefits and loan can be offered under life policies.
Section 54
1. A long term insurer may not:
a. undertake to provide benefits/ provide benefits
b. provide consideration upon surrender
c. male a loan upon the security of a long-term policy contemplated in the regulations, otherwise than in accordance with the requirements and limitations set out in regulations
2. The requirements and limitations set out in (1) apply from inception of policy, irrespective if the policy was entered before or after commencement of this Act or regulations
5-year rule
Regulation 4
Policyholder can only access savings policy benefits twice in the 5 years since inception or since a large contribution was made.
Benefit is limited to premium plus 5% per annum compound
Any balance can be accessed after 5 year expiry.
