DATE SET FOR SAM PILLAR 2 INTERIM MEASURES

RISKSA

The governance and risk management framework for insurers has been amended and publishedin a Board Notice in the government gazette, and will take effect from 1 April 2015.

The Financial Services Board (FSB) also published the comments received on the draft framework, explaining whether comments have been incorporated and the framework amended, or if the FSB disagrees with the comments.

This governance and risk management framework is commonly known as the Pillar 2 interim measures within the Solvency and Assessment Management (SAM) framework, which comes into force in totality in 2016.

Nico Esterhuizen, SAM Programme Manager at the South African Insurance Institute, tells RISKSAthat the Pillar 2 deals with broad governance requirements of insurance companies; the requirement to formally adopt and implement risk management systems and internal control systems. It deals with issues such as specific requirements on the composition of a company’s board of directors, the identification and monitoring of current and emerging risks to the company on an enterprise wide basis, and internal control systems including establishing the four control functions; risk management, compliance, internal auditing and actuarial functions (for life insurers).

Companies have been aware of the coming regulation for some time, and many have made changes in line with what they expected to come of the new regulations. However, some companies have been watching the development of the framework and waiting to make changes when the final regulation was published.

Esterhuizen says that the requirements of the framework, while very onerous for insurers, are achievable for companies, however, timelines are tight. Because the framework was published in December and the implementation date is April, companies may only have one board meeting scheduled for the quarter, and there is a significant amount of detail that needs to be put through the board.

“There is the option to apply for an extension with the FSB, but they have made it very clear that companies cannot apply for this extension after 1 April 2015,” notes Esterhuizen.

Esterhuizen explains that the latest and final version of the governance and risk management framework contains certain  contemporary and challenging requirements, for example that the chairperson of the board of directors of an insurer must be an independent director. If a company cannot comply with this, it must inform the FSB and appoint a lead independent director.

Certain Pillar 1 interim measures of SAM, focusing on balance sheets and capital adequacy requirements, has been effective since 2012 for the short-term insurance industry, and pillar 3, disclosures and reporting interim measures became effective in 2014; all designed as stepping stones to the final SAM requirements in 2016. The next substantial regulatory change expected is the release of the Insurance Bill (draft expected for comment in March 2015), which will replace the Short-term Insurance ACT and the Long-term Insurance Act.