Third-party cell captive regulatory policy proposals issued in South Africa

South African authorities have released the regulatory policy proposals relating to third-party cell captive insurance, focusing on governance and risk management. The proposals were issued in a joint communication from the Financial Sector Conduct Authority and the Prudential Authority, and apply to insurance business or microinsurance business conducted by cell captive insurers (as defined in the Insurance Act 2017) and similar arrangements relating to third-party risks. The communication provides an update on the regulatory policy proposals first put forward in a discussion paper in 2013. According to Ernie van der Vyver of Clyde & Co, the communication provides an update on the extent to which the regulatory policy proposals in the discussion paper have been accommodated in the Insurance Act, 2017 and the Prudential Standards, or will shortly be accommodated in Prudential Standards. “The Prudential Authority intends to consult on a proposed Prudential Standard to be developed to deal with adequate governance and risk management, including provisions to be provided for in cell agreements. It is anticipated that the Prudential Authority will consult on such proposed Prudential Standard post-1 July 2018 and the envisaged effective date of the proposed Prudential Standard is 1 January 2019,” said Mr van der Vyver. In addition, he said the joint communication indicates which of the regulatory proposals proposed in the discussion paper are primarily conduct of business matters, which will be dealt with by the Financial Sector Conduct Authority through the publication of a Conduct Standard in terms of the Financial Sector Regulation Act, 2017. It is envisaged that a draft Conduct Standard will be published shortly for consultation in accordance with section 98 of the Financial Sector Regulation Act, 2017. He explained that the communication also confirms who may be a cell owner, “by providing that such is primarily a conduct of business matter and provides that cell owners of third-party cell captive insurance arrangements will not be limited to binder holders, as initially proposed, and that the Financial Sector Conduct Authority recognises that there may be legitimate reasons why an insurer and an intermediary may wish to enter into a cell arrangement without also concluding a binder agreement”. The communication states that the Prudential Standard will impose the following requirements: Governance: Insurers are accountable for the financial soundness of each cell structure that they put in place Insurers must put in place appropriate control and oversight measures to ensure the financial soundness of cell structures Insurers must assess the fitness and propriety of cell owners prior to entering into a cell structure, and regularly thereafter Insurers must enter into written “shareholder” or cell agreements with cell owners, which must, in precise terms, regulate the shareholder and business relationship with the cell owner. Risk management: Insurers must provide for effective risk mitigation procedures, including requiring adequate governance and risk management arrangements within the cell owner The insurer must have appropriate information and data management in the cell structure Insurers must assess the credit worthiness of the cell owner prior to entering into the cell structure, and regularly thereafter. Cell structures must provide for appropriate and proportional risk sharing The insurer must ensure that the investment strategy and investment mandate of the cell structure is fully aligned to the overall investment strategy and investment mandate of the insurer Reinsurance arrangements and the management thereof will be the sole responsibility of the insurer.

Third-party cell captive regulatory policy proposals issued in South Africa

Want to read this article?

Read Next

Marsh tracks slowdown in global Q1 rate hikes

Markel names head of terrorism in London

Allstate posts nat cat loss of $343m for March

UAE flash flood losses manageable as insurers adapt to changing weather

Markel launches professional indemnity solution in Australia

Marsh tracks slowdown in global Q1 rate hikes

Markel names head of terrorism in London

Allstate posts nat cat loss of $343m for March

UAE flash flood losses manageable as insurers adapt to changing weather

Markel launches professional indemnity solution in Australia

Want to read this article?

Read Next

Marsh tracks slowdown in global Q1 rate hikes

Markel names head of terrorism in London

Allstate posts nat cat loss of $343m for March

UAE flash flood losses manageable as insurers adapt to changing weather

Markel launches professional indemnity solution in Australia

Related Articles