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African Insurance Organisation Harmonisation in Insurance Regulation Clem Booth June 2017 Insurance Financial Planning Retirement Investments Wealth Agenda for the Session Introduction Regulatory Globalisation Focus on Africa Questions Introduction Historical Perspective Global insurance supervision and the IAIS Development of prudential regulations Development of anti-money laundering regulations Historical Perspective: Insurance Supervision International Association of Insurance Supervisors (IAIS) 200 jurisdictions in nearly 140 countries Insurance Core Principles (ICPs) World Bank and IMF uses ICPs to evaluate supervisory regimes International Capital Standard for insurers Insurance supervision remains regional and country specific Historical Perspective: Prudential Supervision Prudential Regulations for Banks ⧁ Common capital framework ⧁ Basel I - 1988 ⧁ Basel II - 2004 ⧁ Basel III – 2013 to 2017 Historical Perspective: Prudential Supervision Prudential Regulations for Insurers ⧁ Less global coordination ⧁ Europe Solvency I Directive ⧁ Solvency II Directive ⧁ Three pillar approach ⧁ US on different approach ⧁ Similar regimes Historical Perspective: Financial Crime Anti-Money Laundering (AML) ⧁ 1980’s “war on drugs” ⧁ Financial Action Task Force (FATF) ⧁ After 9/11 ⧁ 4th EU AML Directive ⧁ IMF funding Regulatory Globalisation Development of Harmonisation ⧁ Global reach of the International Association of Insurance Supervisors and Solvency II ⧁ Harmonising prudential regimes Solvency II and the International Capital Standard ⧁ Realities and consequences of global harmonisation ⧁ Threats to harmonisation Current Situation: Global Reach of IAIS and Solvency II European Union 2016 Canada 2014 Guernsey 2015 Switzerland 2015 USA 2015 *State Dependent Japan 2015 China 2015 Bermuda 2011 South Korea Hong Kong 2017 incrementaly 2015-2018 Singapore Tier 1 2014 Others 2015 Malaysia 2012 South Africa 2016 Member of the IAIS Have implemented ORSA framework (including implementation date required by regulators) Australia 2013 Members of the EU Current Situation: Solvency II and Harmonisation ⧁ Solvency II (SII) ⧁ Implementation across Eurpoe ⧁ Third country equivalence ⧁ Full equivalence ⧁ Temporary equivalence ⧁ South Africa also applying for equivalence ⧁ Third country equivalence promotes harmonisation Current Situation: International Capital Standard ⧁ 9 Multinational insurance groups ⧁ Three types of policy measures ⧁ Expanded to include Internationally Active Insurance Groups (IAIGs) ⧁ IAIGs to apply ICS by 2019 ⧁ Currently field testing phase Harmonisation – Some Realities ⧁ Financial Crime – FATF promotes harmonisation ⧁ Bribery and Corruption Acts – reduce opportunity for regulatory arbitrage ⧁ Solvency II and market conduct group supervision approaches promotes harmonisation ⧁ Strain on capital under SII also promotes harmonisation Harmonisation – Some Advantages ⧁ Easier cross border business ⧁ Easier finding investors ⧁ People development ⧁ International deployment of people ⧁ Level playing field and opportunities for expansion into new markets ⧁ Cost benefits from centralised models and systems ⧁ Regulatory arbitrage and exploitation more difficult Harmonisation – Some Disadvantages ⧁ Rules based implementation of principles based regulation ⧁ “Developed world” regulations for “developing markets” ⧁ Cost of compliance ⧁ Potential disinvestments Threats to Global Harmonisation ⧁ Rise of nationalism and fundamentalism globally risks undoing common developed regulation and cooperation ⧁ Regional monetary areas, but little regional supervision ⧁ Political agendas ⧁ Fit-for-purpose implementation ⧁ Lack of industry participation and consultation ⧁ Lack of skills Focus on Africa Unique African Challenges Lack of skilled resources Low levels of funding General population participation Potential for regulatory arbitrage Regulatory An African Insurer’s perspective Focus on African Issues: Skill shortage ⧁ Absence of skills ⧁ A challenge but also an opportunity ⧁ Development of in-country skills ⧁ Benefit from skills and experience of others ⧁ Cooperation between government and business is key ⧁ Secondment opportunities ⧁ Transfer knowledge and experience Focus on African Issues: Lack of Funding ⧁ Self-funding supervisory model ⧁ Central government funding needed ⧁ Insurance industry’s role ⧁ Regulator’s role ⧁ This challenge makes harmonisation difficult Focus on African Issues: Financial Inclusion ⧁ Low financial inclusion and insurance penetration ⧁ Increasing market penetration ⧁ Industry responsibility ⧁ Regulators responsibility ⧁ This challenge makes harmonisation difficult Focus on African Issues: Regulatory Arbitrage ⧁ Increasingly more difficult ⧁ Window is closing ⧁ Corporate risk and compliance culture and ethical behaviour ⧁ Reputational risk for insurers ⧁ Harmonisation closes the window for arbitrage Looking Forward: Common Trends in African Regulation ⧁ Risk Based Supervision and risk profiling of insurers ⧁ Risk Based Capital ⧁ Governance and Risk Management ⧁ Anti-Money Laundering ⧁ Consumer Protection An African Insurer's Perspective ⧁ Sanlam is a truly African company ⧁ Increasing footprint and investment ⧁ Regulatory compliance – licence to do business ⧁ Opportunities for skills development ⧁ African people becoming competitive internationally ⧁ Build relationships and assist in regulatory development ⧁ Participate in regulatory developments ⧁ Cost of compliance ⧁ Consistency of reporting data questions
