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IMF Country Report No. 22/185
SOUTH AFRICA
FINANCIAL SECTOR ASSESSMENT PROGRAM
June 2022
TECHNICAL NOTE ON INSURANCE SECTOR - REGULATION AND SUPERVISION
This technical note on Banking Regulation and Supervision was prepared by a staff team of the International Monetary Fund and World Bank in the context of a joint IMF-World Bank Financial Sector Assessment Program (FSAP). It is based on the information available at the time it was completed in June 2021.
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Title Page
SOUTH AFRICA
FINANCIAL SECTOR ASSESSMENT PROGRAM
June 2, 2022
TECHNICAL NOTE
INSURANCE SECTOR: REGULATION AND SUPERVISION
Prepared By
Monetary and Capital Markets Department
This Technical Note was prepared in the context of the Financial Sector Assessment Program in South Africa during June 2021 mission led by Jennifer Elliott, IMF and Eva Gutierrez, World Bank and overseen by the Monetary and Capital Markets Department, International Monetary Fund, and the Finance, Competitiveness and Innovation Global Practice, World Bank. It contains technical analysis and detailed information underpinning the FSAP’s findings and recommendations. Further information on the FSAP can be found at http://www.imf.org/external/np/fsap/fssa.aspx
Contents
Glossary
EXECUTIVE SUMMARY
INTRODUCTION
A. Scope and Approach
B. 2014 FSAP Recommendations and Implementation
C. Market Structure and Insurance Products
D. Key Risks of the Industry
MAIN FINDINGS
A. Powers, Independence, and Resources
B. Solvency Requirements
C. Governance and Risk Management
D. Group Supervision, Interconnectedness, and Conglomerate
E. Winding-Up and Exit From the Market
F. Market Conduct
BOXES
1. Recognition of Future Profit in Solvency Regimes in Other Jurisdictions and Upcoming IFRS 17
2. Insurance Stress Tests
3. COVID-19 Impact on the Insurance Sector and Regulatory Measures
FIGURES
1. Size of Insurance Sector
2. Insurance Penetration: Premium as Percent of GDP, 2018
3. Trend of Solvency Ratio
4. Asset Allocation of Life Insurers (Linked Products)
5. Asset Allocation of Life Insurers (Non-linked Products)
6. Trend of Lapse Rates of Individual Products of Life Insurers
7. Trend of Surrender Rates of Individual Products of Life Insurers
8. Premium Decomposition by Product Types
9. Future Profit Over Capital Resources of Life Insurers
10. Comparison of the “Risk-Free” Rates of ZAR
11. Enforcement Actions
TABLE
1. Recommendations on Insurance Regulation and Supervision
Glossary
| AI | Artificial Intelligence |
| ALM | Asset Liability Management |
| CEO | Chief Executive Officer |
| CIS | Collective Investment Scheme |
| ERM | Enterprise Risk Management |
| FSAP | Financial Sector Assessment Program |
| FSB | Financial Stability Board |
| FSB-SA | Financial Services Board of South Africa |
| FSCA | Financial Sector Conduct Authority |
| FSRA | Financial Sector Regulation Act |
| IAIS | International Association of Insurance Supervisors |
| IA | Insurance Act |
| ICP | Insurance Core Principle |
| IFRS | International Financial Reporting Standards |
| LGD | Loss Given Default |
| ML | Machine Learning |
| MoU | Memorandum of Understanding |
| ORSA | Own Risk and Solvency Assessment |
| PA | Prudential Authority |
| PD | Probability of Default |
| SAM | Solvency Assessment and Management Framework |
| SARB | South African Reserve Bank |
| TCF | Treating Customers Fairly |
| ZAR | South African Rand |