New rules for Mzansi insurers

capital rules for insurers, aimed at protecting consumers and strengthening the sector, the central bank said yesterday.
The new rules, known as Solvency Assessment and Management (SAM), require insurers to match the capital they hold with the underlying risk they carry to be able to pay out claims should policyholders suffer losses.
SAM, which is being prepared by the FSB, would be implemented in 2014, the South African Reserve Bank said in its latest Financial Stability Review.
“It is expected that that SAM will result in a stronger industry in the longer term,” the bank said, adding that the rules also presented financial and administrative challenges to the industry.
SAM, which is largely based on the European Solvency II framework, would provide insurers that adopt best risk practice with incentives.
The new rules would also require every insurance company to have, as a minimum, functions such as risk management and internal audit.
The South African insurance industry includes Sanlam, Old Mutual, Discovery, Liberty Holdings and Mutual & Federal.
The Reserve Bank said domestic banks were financially sound and that there no signs of fragility in the sector dominated by Standard Bank, FirstRand, Nedbank and Absa.
The banking sector was well capitalised in terms of Tier 1 and total capital adequacy ratios – key measures of a bank’s health – at 14,8 percent and 11,8 percent, respectively, as at the end of December, well above required 7 and 9,5 percent respectively, the central bank said.
“Gauging by the capital adequacy ratio, it is plausible to conclude that the sector can withstand considerable adverse shocks,” the central bank said.
“There are no compelling signs of fragility (in the banking sector.” – Reuters.