Alternate ILAB Measures

Transcription

1 2014 SAM NEWS Alternate ILAB Measures National Treasury issues an important media statement pertaining to alternate measures to replace the ILAB SA QIS3 extension granted for submission of the Solo Returns to 14 May 2014 Draft Three of the SAM Primary Legislation released to the FSB SAM Task Groups for comment Pillar II Readiness Follow up Review- phase one complete FSB s highly anticipated 2014 SAM Update Document is released: Light and Comprehensive Parallel Run Details provided A Publication of the South African Insurance Association SAM NEWS Issue 2 / 2014

2 Table of Contents SAM Snippets... 2 SAM Coordinators Corner... 8 Twin Peaks Model of Regulation... 9 The SAIA SAM Project Support Office (PSO) Team Contact the SAIA SAM Project Support Office (011) SAM NEWS Issue 2 / 2014

3 SAM Snippets Insurance Laws Amendment Bill (ILAB) The National Treasury (NT) has released their highly anticipated communication pertaining to the way forward in addressing the requirements of the Insurance Laws Amendment Bill (ILAB). According to the communication certain requirements of the Governance and Risk Management sections of the ILAB will be introduced via a Board Notice. The power to make use of a Board Notice in order to introduce key components of the ILAB has been made possible by amendments brought about by the Financial Services Laws General Amendment Act. The normal consultation process is applicable and the requirements in the draft Board Notice would already incorporate the industry/public comments made on version two of the ILAB. It is expected that the draft Board Notice will be produced by June 2014 for public comment in order to be published by November The final requirements of the Board Notice are intended to take effect on 01 January The second part of the ILAB which deals with the introduction of supervisory powers for Insurance Groups will be incorporated into phase one of the Financial Sector Regulation Bill (also referred to as the Twin Peaks Bill), the details of which are likely to be announced later in Released as an annexure to the media statement the NT provided their responses to a number of industry comments that were submitted on version two of the ILAB. The focal objectives of the ILAB are to act as a mechanism whereby insurers and reinsurers are able to build towards compliance with the final SAM requirements following a phased-in approach, as well as to improve current shortcomings identified in the Short-term Insurance Act. FSB 2014 SAM Update On the 30 April 2014 the FSB released the 2014 SAM Update Document to the industry. This important document provides much needed information and guidance to the insurance industry relating to crucial developments and timelines within the FSB s SAM Project. Of particular importance to the insurance industry are urgent particulars pertaining to the Light and Comprehensive Parallel Run which have been set out in the SAM 2014 Update. 2 Contact the SAIA SAM Project Support Office (011) SAM NEWS Issue 2 / 2014

4 Light and Comprehensive Parallel Run Summary The table below provides a high-level summary of the fundamentals expected by Insurers and Reinsurers during both Parallel Run Phases Component Light parallel run Comprehensive parallel run Timing 1 July 2014 to 31 December January 2015 to 31 December 2015 Pillar I Calculations adapted from the SA QIS3 specifications, with a simplified approach to the calculation of the SCR. Calculations of financial soundness position for both quarterly and annual calculations. IMAP firms expected to use internal models to calculate the SCR in addition to the standard formula calculation. Compliance with the Governance Board Notice Mock ORSA exercise: Pillar II No Requirements The scope and the requirements of the Mock ORSA exercise will be informed by the Pillar II readiness follow-up exercise that is being conducted during The timing of the submission of the Mock ORSA results to the FSB in 2015 should tie in with the intended ORSA cycle of the insurer on a business as usual basis, but should be by no later than 31 August 2015 Those insurance groups, who are intending to submit an application under SAM for exemption from the solo ORSAs, will be allowed to only submit a group ORSA in the mock ORSA exercise. However, the FSB would like to stress that the exemption from submitting solo ORSAs under SAM will only be granted upon due consideration of the applications received Pillar III Quarterly reporting based on the summary sheets of the QRTs that have been published for comment. It is expected that the following Annual and quarterly QRTs, with some exemptions. Full qualitative reporting requirements 3 Contact the SAIA SAM Project Support Office (011) SAM NEWS Issue 2 / 2014

5 templates will be required: DD91 v6 OF1: Statement of Solvency Position; DD91 v6 OF2: Statement of Assets, Liabilities and Basic Own Funds; DD91 v6 OF3: Statement of Tiering of Own Funds; DD91 v3 D1: Assets; DD91 v5 TPS1: Non-Life Technical Provisions; DD91 v5 TP1: Life Technical Provisions; DD91 v6 MCR: Minimum Capital Requirement; and DD91 v6 SCR: Solvency Capital Requirement Once the quantitative reporting templates have been developed in June 2014, a communication document will be released to provide clarity to insurers on what information will need to be reported during the comprehensive parallel run. This will be followed by a full technical specification, to be released in October 2014 Groups No full recalculation of the SCR required. SA QIS3 segmentation will be used for the light parallel run Smaller groups: No requirements Larger groups: One bi-annual group calculation, reported in line with SA QIS3 Interim requirements for groups Smaller groups: One annual group calculation, reported in line with final SAM measures Larger groups: Two bi-annual group calculations, reported in line with final SAM measures Other noteworthy Information contained in the SAM 2014 Update o The SAM project will also necessitate changes within the FSB (and in future the SARB) to enable effective supervision of the new regime. A key project is underway within the FSB to ensure that systems, processes, and staff are adequate to this end. In scoping and managing this project, full cognizance is taken of the Twin Peaks reforms o The final SAM transitional arrangements will be described in the primary and secondary legislation. It is expected that these transitional measures will include a general measure allowing the smooth transition for those insurers that face a significant change in regulatory capital requirements under SAM compared to the current Insurance Acts. This general measure may be further augmented by specific measures where the impact of certain requirements is phased in over a number of years 4 Contact the SAIA SAM Project Support Office (011) SAM NEWS Issue 2 / 2014

6 o To ensure that non-life insurers are indeed on track to meet the SAM requirements a thematic review on non-life data is planned for the latter half of During this phase, insurers will be expected to complete quarterly as well as annual returns on the SAM basis in addition to their normal reporting This review will provide a deeper understanding of the key data challenges shortterm insurers face and highlight both good and poor industry practices. The insights gained will help inform: o the FSB of insurers that pose a greater risk and therefore require closer attention; and o the required enhancements to the existing measures to satisfy the overall SAM objectives through improved data quality in the non-life insurance industry o Once Discussion Document 29 (v5) setting out the proposed authorisation classes for insurance under the SAM framework has been finalised, it will be escalated to the SAM Steering Committee for approval as a Position Paper. The authorisation classes will inform the granularity that will be required in the QRTs A copy of the FSB SAM 2014 Update Document is available on the FSB s website ( and on the SAIA s SAM website portal ( The Third South African Quantitative Impact Study (SA QIS3) The third and final South African Quantitative Impact Study (SA QIS3) is steadily approaching completion. The FSB have extended the submission date for the Solo Returns from 30 April 2014 to 14 May The initial date set for submission of the Group Returns remains 14 May The SA QIS3 exercise remains a test exercise and the final regulatory requirements are still under development. The PSO also expects that some enhancements will be made to the Non-Life Underwriting Risk Sub Module of the SA QIS3 standard formula in terms of design and calibration. It is anticipated that the FSB will produce a SA QIS3 Report in June Pillar II Readiness Follow up Questionnaire The submission deadline for the Pillar II Readiness Follow up Questionnaire was 30 April The FSB are continuing with the second part of the Pillar II Readiness Follow up review process by conducting interviews with preselected insurers and reinsurers. These interviews are expected to be conducted between April and June 2014 with a full report on the findings of the survey expected in the third quarter of Contact the SAIA SAM Project Support Office (011) SAM NEWS Issue 2 / 2014

7 Primary and Secondary Legislation Primary legislation: The third version of the Primary Legislation has recently been released for comment to the SAM Governance structure. These comments will inform the fourth draft of the SAM Primary Legislation which will be issued for comment by the general public in August Subordinate legislation: The second version of the Subordinate Legislation is currently under development, to be released to the SAM Governance structure by August 2014, with the first public version expected to be released in the first quarter of Internal Model Approval Process (IMAP) The opened-ended Internal Model Approval Process (IMAP) Window took effect from 1 January Insurers and Reinsurers that intend to apply for the approval of an internal or partial internal model to calculate their solvency capital requirement (SCR) can now approach the FSB in this open-ended window period. It is however highly unlikely that applicants applying in the open-ended window will have their internal model approved in time for use from day one when SAM goes live in The PSO is still awaiting the release of revised IMAP documentation as well as a Lessons Learnt from the IMAP document as suggested by the FSB. Quantitative Reporting Templates (QRT s) To date the following Quantitative Reporting Templates (QRT s) have been released by the FSB inviting public comment: Template Title The Assets Template (Discussion Document 91 v3) The Life Technical Provisions Template (Discussion Document 91 v4) The Non-Life Technical Provisions Template (Discussion Document 91 v5) SCR, MCR, Own Funds and Non-life Movement Analysis (Discussion Document 91 v6) Version of Template Date released for comments First 15 April 2013 First 30 June 2013 First First 11 September December Contact the SAIA SAM Project Support Office (011) SAM NEWS Issue 2 / 2014

8 The FiRe (FSB and Industry Reporting) working group are currently working through and addressing all comments received from the industry pertaining to the templates mentioned above. The FIRe working group and members of the Reporting and Disclosure Task group are also in the process of designing the Qualitative Reporting Returns (QRR). The auditing obligations, group templates and the quarterly reporting requirements are being addressed and debated by the FIRe working group. It is expected that these topics will be resolved towards the end of June 2014 after which a further update will be provided to the industry. The PSO has been closely monitoring developments regarding the SAM Pillar III Reporting Requirements and has identified a number of concerns regarding the progress made in this area. The PSO and the newly inaugurated SAIA SAM CFO-QRT Forum (Forum) have drafted a working document entitled SAIA SAM Dialogue Paper 2: Pillar III Reporting Challenges and SAIA Proposals, in which these concerns have been highlighted as well as a number of industry proposals for the FSB to consider in implementing these new QRT s. The PSO and members of the Forum had a fruitful meeting on 17 April 2014 with the FSB and discussed at length the challenges and proposals contained in SAIA SAM Dialogue Paper 2. The PSO will arrange a follow up meeting with the FSB to further discussions around the development and implementation of these QRT s. Reinsurance Regulatory Review Project The FSB is drafting a policy document on reinsurance regulation for inclusion under the new proposed SAM regime. The FSB expect that drafting of this policy document will be complete towards the end of the May 2014 for release to the public, inviting comment. The policy decisions pertaining to reinsurance under SAM are also expected to be included in the fourth version of the draft SAM Primary legislation (Insurance Bill), which is anticipated to be released for public comment in the second half of The SAIA will gather the members of the SAIA SAM Reinsurers Technical Review Forum to thoroughly scrutinise and provide comment on the proposed policy decisions affecting reinsurance in South Africa under SAM, once this document has been released by the FSB. Economic Impact Study The FSB S service provider is currently drafting a report on their findings of the potential impact that SAM will have on the economy. A full report is expected to be presented exclusively to the members of the Economic Impact Study (EIS) Task Group. A summarised version setting out some of the high-level findings of the EIS report might be issued to the public for information purposes. 7 Contact the SAIA SAM Project Support Office (011) SAM NEWS Issue 2 / 2014

9 The findings of the SAM Economic Impact Study will be taken into account in finalising the development of the SAM framework, including potential transitional arrangements. Discussion Documents, Position Papers and Final Position Papers The following Discussion Documents, Position Papers and Final Positions Papers have been approved by the members of the FSB SAM Steering Committee held on 14 April 2014: Discussion Documents Discussion Documents 109 Title Solvency Capital Requirement Structure Date Approved for Public Comment 14 April 2014 Position Papers Position Date Approved for Public Title Papers Comment 71(v 5.1) System of Governance 14 April 2014 ***** SAM Coordinators Corner This section of the SAM NEWS is dedicated to assist SAIA SAM Coordinators with a brief snapshot of noteworthy events and information: The SAIA SAM PSO (PSO) are planning to host a workshop in July 2014 to preparing for the FSB s SAM Comprehensive Parallel Run by exploring/sharing the practical challenges, concerns and implementation strategies confronting our members. Further details will be communicated in due course. The PSO will be calling for workshops to scrutinise and generate industry comment on the recently approved Discussion Document 71 (v5): System of Governance. Details to follow. The FSB SAM 2014 Update released to industry on 30 April Contact the SAIA SAM Project Support Office (011) SAM NEWS Issue 2 / 2014

10 Indications are that the FSB are considering hosting an information session to provide further clarity to the industry around the Light Parallel Run as referred to in the SAM 2014 Update. 29 April National Treasury (NT) released their media statement on alternate measures to replace the ILAB. Twin Peaks Model of Regulation THE TWIN PEAKS MODEL OF REGULATION AS PART OF THE BROADER FINANCIAL SECTOR REFORM As members of the G20-led Financial Stability Board (FSB), member jurisdictions committed to undergo the International Monetary Fund World Bank Financial Sector Assessment Program (FSAP) assessment every five years and, to complement that cycle, a FSB peer review two to three years following a FSAP assessment. As part of this commitment, South Africa volunteered to undergo a FSB peer review in 2012 following which the FSB published a report on the review in February The report examines the progress in implementing two important financial reforms for South Africa that are relevant for the broader FSB membership: interagency coordination and the regulatory structure; and regulation of overthe-counter (OTC) derivatives markets. In its report the FSB welcomed the proposed regulatory reform set out in the National Treasury (NT) policy document approved by Cabinet, titled A Safer Financial Sector to Serve South Africa Better, 2011 and agreed that a shift to a Twin Peaks model of regulation would provide a good opportunity for South Africa to streamline responsibilities and promote the importance of market conduct regulation, which has historically played a less prominent role in certain financial sub-sectors. As prudential supervisory responsibilities is set to be concentrated in a single regulatory authority being the South African Reserve Bank (SARB), a Twin Peaks model will also help to improve oversight of financial conglomerates that dominate the South African financial system. The FSB peer review stated that while the reforms do not seem to reduce the overall complexity of the South African regulatory system in terms of the number of agencies involved in regulation and supervision, it will likely provide more clarity in the assignment of responsibilities and the application of related expertise. The report cautioned that the introduction of a new regulatory structure will require careful planning because South Africa is simultaneously tightening rules for regulated financial institutions and extending the boarders of regulation to comply with new international standards. To this end NT published the Twin Peaks Roadmap on Implementing a Twin Peaks model of regulation in South Africa dated 1 February 2013, followed by the draft Financial Sector 9 Contact the SAIA SAM Project Support Office (011) SAM NEWS Issue 2 / 2014

11 Regulation Bill, 2013 ( Twin Peaks Bill ) in December 2013, which was gazetted with a public invitation to comment by 7 March With the draft Twin Peaks Bill NT published a media statement was released setting out the envisaged phased approach to implementation of the Twin Peaks reform to give effect to the FSAP assessment and FSB peer review recommendations. A phased approach: Phase One The implementation of a Twin Peaks model of regulation will consist of a number of phases. The first draft of the Financial Sector Regulation Bill, 2013 marks the start of the first phase, which is to establish two separate regulatory authorities: o A Prudential Authority within the SARB. The Prudential Authority will be responsible for the oversight of the safety and soundness of banks, insurers and financial conglomerates. The SARB will take a leading role in financial system stability by also becoming the Systemic Regulator for the South African financial system, responsible for maintaining, and in the event of a financial crisis, restoring financial stability. o A new Market Conduct Authority, established to protect customers of financial services firms, and to improve the way financial services providers conduct their business. The Market Conduct Authority will also be responsible for ensuring the integrity and efficiency of financial markets, and promoting effective financial consumer education. The draft Bill creates the concepts of mono-regulated and dual regulated entities. Monoregulated entities are those that undertake activities that only give rise to market conduct regulation (e.g. advisory and intermediary services). Dual-regulated entities are those that undertake activities giving rise to both prudential and market conduct regulation (e.g. banking and insurance.) The Bill introduces the SARB as the resolution authority for the financial services industry and grants the power to take decisions for crisis management to the Minister of Finance in certain instances. It also approves the establishment of the statutory Financial Stability Oversight Committee (FSOC), chaired by the Governor of the Reserve Bank, with appropriate financial stability powers. The FSOC will be responsible for the publication of a financial stability review twice a year. The Bill also provides that the FSOC will have the power to recommend to the Minister that a financial institution should be designated as a Systemically Important Financial Institution (SIFI). In the SAIA submission on the Bill concerns were raised that the Bill does not provide the qualification criteria for a local SIFI and that the current definition in the Bill only focuses on certain aspects, not capturing the purpose of this designation. More work is required on the definition and criteria of a SIFI, and is expected in the revised second draft of the Bill. 10 Contact the SAIA SAM Project Support Office (011) SAM NEWS Issue 2 / 2014

12 In addition, the Bill provides for: the establishment of the Financial Services Tribunal, as an independent panel to consider and decide on administrative appeals by any person aggrieved by a decision of a regulatory authority. the establishment of the Council of Financial Regulators (CFR) to coordinate matters between all regulators including regulators that do not report to the Minister of Finance, including the National Credit Regulator, Council for Medical Schemes, Competition Commission and the National Consumer Commission. The CFR will aim to enhance alignment between the various regulators on issues such as financial stability, market conduct, competition, legislation, and enforcement. the repeal of the Financial Services Board Act 97 of 1990 as a whole, with the exception of Section 28 of the Act (as amended by the Financial Services Laws General Amendment Act, 2013, which exempts any financial service, product or institution regulated by the Financial Services Board ( FSB ) and the FSB itself from the scope of the Consumer Protection Act (CPA), 2008); amendments to the Financial Services Ombud Schemes (FSOS) Act, 2004 including adding the requirement that all financial institutions will have to be members of an Ombud scheme. It also broadens the mandate of the FSOS Council to, amongst others, approve the appointment or removal of an Ombud, set norms and standards for Ombud schemes including those to ensure the independence of such schemes, and establish a centralised helpline and call centre for financial consumers to provide for a single entry point for all financial services industry related complaints. NT in a recent media statement on alternative measures to replace the Insurance Laws Amendment Bill, 2013, dated 29 April 2014, indicated that a formal framework for the regulation and supervision of insurance groups will be provided for through the Twin Peaks processes and in the legislation that will give effect to the SAM regime. It is expected that the formal framework introducing the regulation of insurance groups may be included in the revised second draft of the Twin Peaks Bill, which is anticipated to be published after the national elections in May A phased approach: Phase Two The second and subsequent phases of the broader financial sector reform has been set to address the legal and regulatory framework of specific sectors, and the overarching theme of improved regulation for conduct of business. Jurisdictive initiatives in these subsequent phases that will influence the insurance industry are set to include: Legislation introducing the Solvency Assessment and Management (SAM) regime, which sets out the establishment of a risk-based framework to strengthen the capital requirements for insurers, as well as set more stringent governance and riskmanagement requirements; 11 Contact the SAIA SAM Project Support Office (011) SAM NEWS Issue 2 / 2014

13 Legislation to support insurance group supervision, which is to be incorporated in the Twin Peaks processes as set out under Phase One above. NT has alluded to the possible development of a Resolution Bill that will support the enhanced focus on conglomerate supervision, as well as to provide a resolution framework in the event that an insurer fails; Legislation to give effect to the Treating Customers Fairly (TCF) framework, to ensure that financial institutions are able to demonstrate the fair treatment of its customers, though the delivery of clearly determined fairness outcomes. The South African authorities have expressed the view that moving to a Twin Peaks model of financial regulation will improve prudential and market conduct regulation and create a more resilient and stable financial system. The Twin Peaks Bill will likely be introduced in Parliament before the end of 2014, although an overall timeline for the completion of the reforms has not yet been set. Article by: Lezanne Botha, SAIA Programme Manager: Legal Projects Lezanne Botha Sources: Financial Stability Board Peer Review of South Africa: review report - 5 February 2013 National Treasury Media Statement 29 April 2014 ***** 12 Contact the SAIA SAM Project Support Office (011) SAM NEWS Issue 2 / 2014

14 The SAIA SAM Project Support Office (PSO) Team Nico Esterhuizen Follow us on and on LinkedIn: SAIA SAM Online Forum Contact details: Gareth van Deventer Tamara Stacey Jansen The South African Insurance Association Ground floor, Willowbrook House, Lake Drive, Constantia Office Park, c/o 14 th Avenue and Hendrik Potgieter Street, Weltevreden Park 1709 P.O Box 5098 Weltevreden Park 1715 Tel: Cell: Website: Contact the SAIA SAM Project Support Office (011) SAM NEWS Issue 2 / 2014