Titel hier presented by John Doe Date here SOUTH AFRICAN INSURANCE ASSOCIATION

The potential impact of SAM on niche and small insurers presented by Nico Esterhuizen Programme Manager: SAM The Insurance Conference 2012

Discussion Points Understanding small and niche insurers Impact of SAM Drivers and challenges Unknowns

World Insurance Market and Prudential Changes Insurance Market USA 36.08% Europe 36.20% Japan 6.37% China 3.94% Australia 1.91% Brazil 1.71% Chile 0.18% Mexico 0.57% Turkey 0.43% South Africa 0.55% 1.08% = $20bn

Rankings in Insurance Market Insurance Market USA 36.08% Germany 6.65% UK 5.49% France 4.96% Italy 2.88% CH 1.32% Sweden 0.48% Poland 0.48% Greece 0.16% South Africa 0.55% SA ranking: Nr. 22

Niche Insurers Total: 108 Niche Insurers 32 Insurers Those insurers who offer mostly specialised cover in niche markets 2010 R6, 465m 2009 R5, 712m 2008 R4, 976m Net Premium

Captives Insurers Total: 108 Captive Insurers 10 Insurers Those insurers who offer cover of the risks of the owners’ company or companies only 2010 R395m 2009 R329m 2008 R185m Net Premium

Small Insurers Total: 108 Small Insurers 17 Insurers Those insurers with a net premium income of < R150m

Impact, Drivers and Challenges DriversChallengesImpact

(Potential) impact of SAM Merger and acquisitions Move to cell-captive environment Insurers further de-risk their asset allocations Reduced competition in higher risk insurance products Increase in absolute MCR: R15m Increase in fixed operating expenses

(Potential) impact of SAM Higher reserves Higher capital adequacy requirement Change in authorisation classes Policyholders will ultimately bear the costs Improved risk management, transparency, capital adequacy.

Pillar 1 drivers and challenges IFRS vs. MCVB Non-life underwriting risk calibration for SA only at QIS3 Current data quality and availability Reinsurers data challenges with SAM Participation in SA-QISs and quality of results Ring-fenced funds Segmentation Group SCR Documentation Credit Ratings Contract boundaries Loss absorbency Trade credit insurers

Pillar 2 drivers and challenges Independent Non-Executive Chairperson Appointed Actuary Board and the Internal Model ORSA Use Test Fit and proper Control functions Governance and risk systems

Pillar 3 drivers and challenges Competitive information disclosed publically Significant increase in auditing-fees because of SAM auditing requirements Time and cost of reporting vs. value Materiality

The real impact of SAM Pillar 2 Pillar 1 Pillar 3

Unknown Defining proportionality Nature, size and complexity EIOPA: “The principle of proportionality is intended to support the consistent application of the principles-based … requirements to all insurers.” –Less disclosures and reporting for small insurers? –Less onerous governance requirements?

Unknown: Principle of Solvency II: “Actuarial and statistical methodologies applied are proportionate to the nature, scale and complexity of the underlying risks” Aim not to make the calculation requirements on less complex companies too onerous…. Simplifications to SCR standard formula allowed…Further guidance still to be issued under SAM….

Unknown Reserve Bank and supervisory style Results of the Economic Impact Study Transitional Arrangements Rand Bands

Titel hier presented by John Doe Date here Thank you!