|
Category:
Insurance
News /
Life
Insurance /
Fiancial
Services Board / April 2007
Capital management vital for long-term
insurers
A number of applications for the
issuing of subordinated debt instruments
 The
Financial Services Board (FSB) says the effective management of
capital remains important to long-term insurers while at the same
time the industry continues to face numerous challenges.
In the eighth annual report of the
Registrar of Long-term insurance, the FSB says the importance to
manage capital is seen from the number of applications for the
issuing of subordinated debt instruments received from some of the
major players in the long-term insurance industry.
The challenges continuing to face the
long-term insurance industry are:
-
Compliance with regulatory
requirements
-
Increased competition
-
Financial Sector Charter
-
International Financial Reporting
Standards
-
Addressing the needs of the low
income market for appropriate products
Technology
-
Minimum early termination benefits
of policies – implementation of the Statement of Intent signed
by the Minister of Finance and the major players in the
long-term insurance industry
-
Rebuilding public confidence
-
Dealing with issues emanating from
the determinations by the Pension Funds Adjudicator
-
Consumerism
Generally the industry remains in a
healthy state. Net premium income for primary insurers increased by
8.2% during 2005 (from R151.4m to R163.7m) compared to a decrease of
7% during 2004. The increase in premium income is attributable to
the high levels of credit growth in the household sector where
credit life policies are taken out as protection against credit
arrangements.
Benefit payments decreased by 2.8%
(from R165.2m to R160.5m) compared to a 5.6% increase for 2004.
The excess of income over expenditure
for primary insurers increased from R2.8bn in 2004 to R26.3bn in
2005. Assets showed an increase of 16.5% (from R908.51m to
R1.058bn). The increase in the assets of primary insurers was mainly
due to the strengthening of equity markets.
The 2005-year reflected an increase in
equity, debentures and loan stock investment by long-term insurers.
The ratio of assets to liabilities for primary insurers remained at
1.10.
The number of policies that surrendered
as a percentage of the number of new policies issued has shown a
steady decline from 24.9% in 2001 to 11.9% in 2005. The number of
policies that lapsed as a percentage of the number of new policies
issued also reflects a drop from 29.3% in 2001 to 22.7% in 2005.
The Registrar undertook an
investigation to gain a better understanding of the rules of a
long-term insurer, as required in terms of section 53 of the
Long-term Insurance Act, to establish to what extent long-term
insurers record profit or losses when policies are surrendered or
lapsed. The outcome indicated that the cost structures of insurers
need to be addressed.
A joint working group was established
by the FSB and the National Treasury to conduct a study regarding
commission regulation. It was accepted that the matter was complex
and had no quick fix.
It also became evident that several
aspects of the traditional business model followed by insurance
companies in providing savings products had become outdated. New
developments culminated in the signing of the Statement Of Intent
between the Minister of Finance and major players in the long-term
industry during December 2005.
Although this statement primarily
addresses issues of poor benefits in the event of early termination
of contributions, the agreement also includes a commitment to
examine other issues including commission structures, disclosure
standards and consumer education.
As part of the FSB’s supervision, a
number of insurance companies were visited during 2005. The visits
focused on the various risk areas of insurers and the ability of
management to properly implement risk management procedures. The
following are areas of concern identified during the on-site visits:
-
Lack of corporate governance
especially in small insurers
-
Outsourcing arrangements
-
The complexity of product design,
specifically in linked investment products
-
Undue reliance on individuals
within companies, i.e. key staff
-
IT systems
-
Impact of the National Credit Act
-
Assistance business insurers are
concerned about the competition from unregistered entities.
The FSB is party to a number of
bilateral Memorandum of Understanding with international
supervisors. Its membership of international organizations includes
the International Association of Insurance Supervisors.
Source: ITInews – Insurance
Times and Investments Online
www.itinews.co.za
 |
