1. PRESENTATION BY THE FINANCIAL SERVICES BOARD TO THE PORTFOLIO COMMITTEE ON TRANSPORT RE: VIEW ON THE ROAD ACCIDENT FUND’S (“RAF”) CURRENT SITUATION AND THE RAF’S RESCUE PLAN
ROB BARROW – EXECUTIVE OFFICER
SUZETTE VOGELSANG – HEAD: INSURANCE PRUDENTIAL

2. INTRODUCTION
Last report by FSB on RAF for the financial year ended 31 March 2006
In the process of finalising the report for the financial year ended 31 March 2007
FSB’s report highlighted the shortfall in net assets of the RAF
FSB regulates insurance industry on a prudential basis
FSB’s review of RAF’s “Rescue Plan”
The question is “Should the RAF be funded on the same basis as a registered short-term insurance company?”

3. FINANCIAL POSITION OF THE RAF
Annually a report to Honourable Minister of Finance
31 March 2007
R’ million
31 March
2006
31 March 2005
31 March 2004
31 March 2003
Total assets
4 208
4 357
1 708
768
1 250
Total liabilities
24 385
22 728
21 559
19 325
16 680
Surplus/(deficit)
(20 177)
(18 370)
(19 852)
(18 557)
(15 430)

4. FINANCIAL POSTION OF THE RAF
Increase in deficit
Fund is in a technically insolvent position
RAF does not have sufficient cash or near cash assets to cover its short-term liabilities
The liquidity ratio 0.42:1 (0.61:1, 2006)

5. FSB’S VIEW ON THE FINANCIAL SUPERVISION OF THE RAF
Fundamental Insurance principles are not embodied
Funding received is disconnected from the benefits payable by the Fund
No direct relationship between the Fund and the insured person
Standard fixed rate is not in line with general insurance underwriting principle i.e. poor risk should pay a higher premium

6. FSB’S VIEW ON THE FINANCIAL SUPERVISION OF THE RAF
Financial Supervision of the RAF Act silent on the objectives of the supervisory functions.
Short-term Insurance Act, 1998 specific requirements:
Solvency
Liabilities to be provided for
Types of assets to be invested in
Liquidity requirements
Fit and properness of directors
Limitation of certain actions by insurers
Registration conditions
Actions by the Registrar

7. FINANCIAL POSITION OF RAF vs. ST INSURANCE INDUSTRY TYPICAL
Key ratios
RAF
ST Insurers - Typical (Unaudited)
% PI or Fuel Levy income
31/03/07%
31/03/06 %
31/03/05 %
31/12/07 %
31/12/06 %
31/12/ %
Claims Ratio
123¹
111
119 66 65 63
Expense Ratio 7² 9 10
27³ 25 26
Underwriting profit (loss)
(30)
(20)
(29) 6 8
Underwriting and investment income
(27)
(19)
(28) 14 15 16
1 – RAF claims includes claims related expenses
2 – RAF Expenses only in respect of staff and admin cost
3 – ST Insurer expenses includes commission payable i.e. Motor business 12.5% and other business 20%

8. FINANCIAL POSITION OF RAF UNDER ST INSURANCE ACT, 1998
Liabilities
Outstanding Claims
Undiscounted provision (R million higher)
IBNR
7% of Net Fuel Income (R409 million)
Contingency Reserve
10% of Net Fuel Income (R701 million)
URP
Provided if an underwriting loss
Additional requirement
15% of Net Fuel Income (R1 050 million)

9. FSB’S VIEW OF RESCUE PLAN
Not in a position to comment on the Rescue Plan as such
The Rescue Plan appears to adequately address the key issues
Noted the following since the implementation of Rescue
Plan:
Increase in staff productivity i.e. number of claims finalised
per staff member
First time claims finalised greater than claims lodged
during 2007
Noted an improvement in administration and staff
expenses
HOWEVER:
An increase in the number of months delay in claim
settlement
No improvement in costs to service providers
Fruitless expenditure of R10million for interest and
sheriff cost

10. FSB’S VIEW OF RESCUE PLAN (Cont.)
Supervising the insurance industry the following:
Very expensive to implement and maintain a new system
Normally teething problems with a new system that can cause unplanned delays
Difficulty in attracting and retaining knowledgeable and experienced staff
Internal control, segregation of duties and clear processes and procedures