Regulations Flashcards
Why may there be moral hazard on lives of children in micro-insurance
-no limits on the number of policies that can be taken out for funeral business
-hence LTIA has placed limits on lives of children to prevent them being killed for payout
What is regulation 3A about?
-Remuneration limits for intermediaries
-All risk and investment policies written before 1 Jan 2009
-No commission limits for micro-insurance
What happens if there is an early lapse? (3A)
-If it is within 2 years from inception for recurring prem policies, company is obliged to clawback.
-max amount that can be paid starts at 0% for less than 6 months and goes to 100% after 2 years. It is a sliding scale
What is regulation 3B about?
-Applies to inv policies sold after 1 Jan 2009
-Previous commission on investment policies had heavy upfront commission
-This regulation is about aligning PH,LI and FA interets more closely
What happens with early lapse? (3B)
-Unearned discounted future commission payment will be reversed if it was all paid up front
-if commission is paid in line with premiums, not clawback will be necessary
-This regulation applies to full lapse or any alterations
What is regulation 4 (5 year rule about)?
-About max withdrawal in 5 years
-PH can only access policy benefits twice in 5 years since inception or since large contribution
-Benefits is max of the premiums paid compounded at 5%
What are the seven rules of PPR (MT COPPP/empty kop)
o Micro-insurance & funeral policy product stds (falls under PD)
o TCF – reqs for fair treatment of PHs
o Credit life insurance
o Negative option selection of policy terms & conditions (defaulting PH to least optimal option)
o Product design
o Determining prems
o Prem reviews
Can suicide be excluded?
Yes, but only for the first 12 months
What are the 2 circumstances under which negative selection is allowed?
1) A term/condition that is required under legislation
2) If the default option is designed to achieve fair treatment of the PH where they have failed to make the required election
When can premiums be reviewed
-If policy provides for it and states the frequency of review and circumstances under which a review will take place
Premium review considerations
1) Must balance the PRE of PH and interest of insurer
2) Can only review if experience has differed materially
3) For policies with risk and investment components, must take into account PRE in respect of both components
Can’t implement prem review for following 5 reasons
1) Unfairly target group of PH for increase (cross-subs between rich and poor)
2) Increase inv management charge to make up for inadequate risk charge
3) To cover losses being made elsewhere
4) Adjust premiums that were based on over-optimistic assumptions
5) If they want to recoup losses made in previous period
What is regulation 5 all about?
1) Allows for appropriate risk sharing between the PH, insurer and FA
2) Max alteration charges over the term of the policy if multiple alterations were conducted
3) Guidance on calculation of EAS and min SV
What does regulation 5A cover?
-minimum values for savings policies where contractual changes have taken place
-requires insurers to communicate clearly on what the impact of policy changes are going to be. (e.g. must say if terrible value for money)
From 1 Dec 2006:
-all fund member policies which become paid-up, lapse or ↓ prems must receive min benefit of 70% of investment account
-if lapsed, must receive min benefit of 60% of investment account
What does regulation 5B cover
-Min value payable on a contractual change to a policy written after 1 Jan 2009 is to be no lower than 85% of the investment account (e.g. UF) should the contractual change occur during 1st year of policy (e.g. alteration) w/ a fixed rand expense deduction permitted but subject to the sub-min below
-percentage increases stepwise to midpoint of policy term rounded down (min 5, max 10)
-insurer cannot deduct more that R300 for contractual changes
What is the principle of proportionality
Insurers should use a valuation methodology that reflects the scale, nature and complexity (NSC) of the underlying risks that are involved in the business
What are recoverable and other risk management strategies shown as on the balance sheet?
Assets
What does the unbundling of contracts refer to?
Splitting the life and non-life portions of the contract
How could you assess model error (JOBSS)
-Expert judgement (e.g. if values look off)
-Sensitivity analysis (if the sensitivities seem off)
-Comparison of results w/ other methods
-Analysis of descriptive stats (e.g. the theoretical distribution)
-Back-testing
How is MCR calculated
linear sum of basic volume measures (e.g. written prems, TPs, capital-at-risk & operating expenses) multiplied by specified factors, calibrated (at a high level) at the VaR of the BOF, subject to a confidence level of 85% over a 1-year time horizon
What business does SCR include
existing business as well as new business expected to be written over the coming 12 months
What allowance must be catered for in the SCR calc
1) counterparty default risk decreases effectiveness of risk mitigation instruments
2) Risk mitigation instruments subj to limits
3) Policyholder behaviour
4) Future management actions
-split into when shocks are company wide
or industry wide
Which important risk is excluded from the SCR calculation and how should it be reported on?
Liquidity risk
LIs have to disclose to PA an assessment of liquidity risk called the liquidity risk shortfall indicator
What does illiquidity risk refer to?
Illiquidity premium risk refers to the risk of a decrease in Basic Own Funds resulting from a decrease in the illiquidity premium used in the valuation of technical provisions
What does impact of management actions have to take into account
1) Whether shock was industry wide or company specific
2) Consider the effect of shocks in a certain combination between industry wide and company specific (e.g. 25:75)
In the life underwriting module, what allowance needs to be allowed for in each sub-module?
Risk mitigation instruments and counterparty default risk
How is liquidity shortfall indicator calculated (Also required under ORSA)
Calculated by comparing available liquid assets w/ the CF reqs after a combined SCR loss event
When must ORSA be undertaken?
1) Annually
2) When risk profile changes materially
3) When directed by PA
What assessments have to be carried out as part of ORSA?
1) Potential future changes in risk profile in stressed scenarios
2) Quantity and quality of OF needed over projection period
3) Quantity and quality of OF available including composition across tiers and how this composition may change over time
4) Overall solvency requirements should be in quantitative terms accompanies by qualitative description of risks
5) Deviations between insurer’s risk profile and the risk profile underlying SCR calculation
What are the aims of the FAIS
-professional conduct
-better informed clients
-Aims to raise the bar on fit and proper
requirements
Under NCA, what rule is there about premiums and loan repayments
Premium for credit insurance cannot be added onto the loan repayments. They have to be separate payments
What is FICA all about?
-curb money laundering and unlawful activities
-protect financial interests of clients
Aim of POPIA
protect people from harm by protecting their personal info (PI). Assists in protecting privacy (fundamental human right) & also stopping personal financial misconduct (e.g. via better data storage, more onerous data reqs) + misuse of identity (e.g. creating multiple bank accounts to get credit numerous times, say)
What does the ASISA Code on Policy Quotations require LI to disclose
o At POS, the potential for prem reviews
o Where prem changes are expected, the expected level of the prems (i.e. in advance of the review’s finalisation)
o Where prem changes aren’t expected, the frequency of prem reviews & the circumstances that would lead to a prem review
Does the investment industry have max commission?
No
