Ian Marshall
Head of Department: SAM
11 June 2012
Overview of SAM implementation
 Quantitative Impact Studies
 Pillar 2 Readiness

2
Overview of SAM implementation
 Quantitative Impact Studies
 Pillar 2 Readiness

3

New risk-based solvency regime for both long-term (life) and short-term
(non-life) insurers and reinsurers, to be in line with international
standards, based on Solvency II

Staged implementation
– 1 January 2012 – Revisions to the Non-Life quantitative regulatory requirements
– 1 January 2013 – Interim measures, introducing enhanced governance and risk
management requirements, as well as group supervision
– 2014 – Parallel run of SAM and current basis
– 1 January 2015 – Full implementation

3 Pillar approach, placing a lot of emphasis on good management and
transparency

Quantitative requirements based on Market Consistent valuations, with
the capital requirement reflecting the risks in the business

Development through extensive industry consultative approach
4
5
Stakeholders
participating in
the SAM Forum
Structures
Solvency Assessment and Management (SAM)
Steering Committee
Quantitative
Requirements
Sub Committee
Risk Management
& Governance
Sub Committee
Reporting &
Disclosure
Sub Committee
Technical Provisions
Task Group
Governance
Task Group
Reporting &
Disclosure
Task Group
Economic Impact
Study
Task Group
Capital Requirements
Task Group
Own Risk and
Solvency Assessment
& Use Test
Task Group
SAM Communication
Task Group
Tax
Task Group
Capital Resources
Task Group
Stress Testing
Task Group
Pillar I
Assets
Task Group
Internal Models
Task Group
Insurance Groups
The South African
Insurance Association
(SAIA)
Association for
Savings & Investment
SA (ASISA)
Actuarial Society of
South Africa (ASSA)
CONSULTING
Pillar III
PROCESS
Insurance &
Reinsurance
Companies
Pillar II
National Treasury
The South African
Institute of Chartered
Accountants (SAICA)
South African
Revenue Service
(SARS)
IRBA
South African
Reserve Bank
(SARB)
SAM Governance
structure (including
public consultation)
SAM Framework
FSB review
Other Regulatory
Regimes
• APRA
• OSFI
Economic Impact
Study
Public Comment
Further Guidance
IAIS ICPs
Primary legislation (6 drafts)
Solvency II Framework
• Framework Directive
• Delegated Acts
• EIOPA binding
standards and
guidance
Subordinate legislation (4 drafts)
Quantitative
Impact Studies
Reinsurance
Project
National Treasury
and Parliamentary
Process
Overview of SAM implementation
 Quantitative Impact Studies
 Pillar 2 Readiness

8

Participation: 35 life insurers, 50 non-life insurers, 5 life
reinsurers, 5 non-life reinsurers

Voluntary QIS exercise required significant resources to
complete
Some insurers require more guidance on the various SAM
methodologies
Some insurers experienced problems in obtaining the
necessary data and inputs
Some of the QIS submissions had to be cleaned by the FSB
before the analysis could take place
Two of the submissions were excluded from the analysis
Insurers generally reported that their reliability of results
were good





9

Aggregate view across all submissions:

The majority of insurers have shown an increase in both the available capital as well as
the capital requirement
For two thirds of the life insurers, this increase in available capital is more than the
increase in the capital requirement, leading to a larger free surplus
Many insurers showed a decrease in capital coverage ratio., the capital coverage ratio
can decrease even where the actual amount of free surplus has remained the same or
has increased


10

Proportion of respondents not meeting prescribed capital requirements:
11

Contribution of risk components to Basic Solvency Capital Requirement (BSCR):
Non-life insurers

Largest component of the BSCR for non-life insurers is non-life underwriting risk, followed by market risk.
Counterparty default risk is the other main component of the BSCR, with no significant exposure from any of
the other risk components
12





Market Risk: greatest components
are equity risk and interest rate risk
Equity risk: 91 % of equities are
locally listed.
Non-life underwriting risk: greatest
components are premium and
reserve risk and catastrophe risk
P & R risk: concerns regarding
non-proportional reinsurance and
risk mitigation strategies
Cat risk: man made cat component
was significantly greater than natural
cat component. Largest components
of man made cat risk were credit and
terrorism risks.
13
Deliverable
Date
Publishing of draft SA QIS 2
technical specification for
comment
31 May 2012
Final date for submission of
comments
22 June 2012
Publication of final SA QIS 2
technical specification
13 July 2012
Submission of results for solo
calculations
15 October 2012
Submission of results for
group calculations
5 November 2012
SA QIS 2 report published
31 January 2013
Overview of SAM implementation
 Quantitative Impact Studies
 Pillar 2 Readiness

15
Readiness
Assessment
Key Components
Pillar 1 Pillar 2 Pillar 3
Technical Provisions
Minimum Capital
Requirement
Solvency Capital
Requirement
Own Funds
Quantitative Impact
Studies
IMAP process
Governance Framework
Control Functions
Risk Management
System
Private Reporting
Public Disclosure
ORSA
Pillar II Readiness
Review
Field Testing
Parallel Run
Draft timelines:
Deliverable
Date
Circulate survey, taking into
account comments received
Early June 2012
Deadline for completion of
survey
July 2012
Conduct follow-up interviews
September to November 2012
Report on findings
Early 2013
For proposed SAM Pillar II requirements
• Not intended to be a
checklist of the final Pillar II
requirements.
• Not all Pillar II requirements
are included.
• Pillar II requirements are still
under development.
Further questions on
 Plans for future development
 Suggestions for proportionality
Questions ???
19