ANNUAL REVIEW SAIA BUILDING A COMMON FUTURE - South African Insurance Association
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SAIA BUILDING A COMMON FUTURE ANNUAL REVIEW 2015
BUILDING
A COMMON
FUTURE
The foundation of the short-term insurance industry is built on the concept of a shared community influenced by all contributing members to build a common future. At the South African Insurance Association, we believe that the bricks we lay for building a beneficial future for all, is solidified by the relationships we build and strengthen. For us building a common future is about working together with all our stakeholders to reach a common goal. It is also about learning from our past and embracing the changing environment in which our industry operates.
SAIA MISSION
• Encouraging fair and ethical treatment
of consumers of short-term insurance
products;
• Representing the short-term insurance
industry with all stakeholders and at all
SAIA
levels in such a way that these stakeholders
have trust and confidence in the industry;
• Creating an environment in which the
VISION
members of our industry can share
information, debate important and relevant
issues, and create a common vision for the
short-term insurance industry;
• Creating opportunities for the industry to To promote and represent the interests of the
continue with and embark on initiatives short-term insurance industry, while leading
that will enhance its image and reputation and enhancing the efforts of the industry to
among all stakeholders; become recognised and trusted as an important
contributor to the South African economy and
• Promoting understanding of short-term
society.
insurance to all stakeholders;
• Promoting awareness of the industry and
its contributions to society and the South
African economy.
CONTENT
06 48
The SAIA Chairman’s SAIA Strategic Area 7:
Report 2015 SAIA Finance and Operations
08 50
The SAIA Chief Executive’s Associated Divisions:
Report 2015 The South African Machinery
Insurers’ Association
12 53
Industry Results Associated Divisions:
The Association of Marine
Underwriters in South Africa
20 56
SAIA Strategic Area 1: SAIA Highlights
Transformation and Social Risks
26 58
SAIA Strategic Area 2: Membership: The SAIA Board
Stakeholder Relations Members as at the end
and Communication of February 2015
28 61
SAIA Strategic Area 3: Membership:
Governance Risks The SAIA Members
34 61
SAIA Strategic Area 4: Membership:
Reinsurers The SAIA Committees
with Elected Members
36 61
SAIA Strategic Area 5: Membership:
Solvency Assessment The SAIA Committees
and Management
40 62
SAIA Strategic Area 6: Membership:
Insurance Risks The SAIA Employees
REPORT FROM THE
SAIA CHAIRMAN
T
The short-term insurance sector is intimately linked with society and the economy. It is in this spirit that SAIA and its members are seeking to work together to
As the fortunes of the economy rise and fall, so do the fortunes of the sector. This contribute meaningfully to the development and strengthening of both our society
phenomenon is driven by changes in the value of assets, the effect of the economic and the economy. Of course, there are many challenges that await us ahead to
cycle and the infrastructure requirements of all the participating individuals, test our commitment to the quest of achieving both relevance and acceptance
businesses and governments who are in need of risk covers. In a very real way the by all segments of society. Despite these challenges I sincerely believe that our
short-term insurance sector underwrites the activities of those who are building industry is well-positioned to emerge out of our current transformative process as
the future, both in the private and public sector, locally and increasingly outside a more stable customer-focused industry working in a trusted partnership with our
South Africa’s borders as our members expand the commercial reach of their regulatory authorities.
operations.
Our approach is to engage meaningfully with all the major stakeholders of our
This broader context presents our industry with the ongoing challenge of having to industry on a number of key practical issues of implementation to be addressed in
find innovative ways to address the evolving risks against which our customers seek a spirit of mutual trust and accountability. In these engagements we constantly seek
indemnity. Our members certainly end up at the sharp end of responding to the to deepen our role within the financial sector as committed partners that share a
financial loss associated with risks, such as those posed by fire, storm, flood, hail common vision of the future of financial services.
and accidents. However, these loss events are only the end result of our collective
and individual risk-generating behaviours as civil society, business and government. In this future we not only see an insurance sector that is financially robust,
operationally efficiently and demonstrably fair, but also one that will continue
The World Economic Forum (WEF) has now for ten years tracked the world’s to take its rightful place in respect of the broader aspects of holistic national
significant risks and moved from identification to tracing interconnections between development and as a global role model. SAIA is in full agreement with the many
risks and the cascading effects of these over time. This assessment, which reflects voices within our industry who acknowledge the need for our industry to embrace
the perceptions of the world’s leaders, highlights the critical role played by the renewal and transformation as part of South Africa’s journey to a more sustainable
insurance sector in absorbing risks as society’s safety net when disasters strike. The future. We, therefore, see this as an opportunity to strengthen the SAIA value
report also indicates quite clearly that we here at the southern tip of Africa are not proposition by crafting an industry body that will meet the future needs of all SAIA
unique in our exposure to significant environmental effects, governance challenges members, whether large or small on a truly sustainable basis.
and the urgent need for creating employment.
As Chairman of a dynamic and vibrant industry association I am well aware of my
Nevertheless, it is important for us not to lose sight of the reality that the very deep reliance on the contribution of many others. I therefore wish to express my
existence of risk also presents the insurance sector with the opportunity to play our heart-felt appreciation for the generous support I have once again received from
fullest role possible in providing society with a safety net in times of need. This all many quarters, led by the efforts of the SAIA Exco and the Board together with
points us towards the vision and purpose of the Principles for Sustainable Insurance the newly restructured management team. There is, however, still much to do in
(PSI) sponsored by the United Nations Environment Programme, of which SAIA the year ahead and I look forward to the opportunity of working with all of you to
is a supporter. This vision envisages a risk-aware world, in which the insurance build together an industry that will make us all proud.
industry is a trusted participant contributing significantly towards and enabling the
emergence of a healthy, safe, resilient and sustainable society. Achieving these high
ideals will not happen on its own but will require us to deepen our understanding
of the drivers of environmental, social and governance risks in partnership not only
with our customers but also with society in general.
THEMBA GAMEDZE
07
EPORT FROM THE
SAIA ACTING CHIEF
EXECUTIVEI
It is amazing that so much can happen in one year! that could lead to collaboration between the two industries and their respective
representative bodies whilst recognising the uniqueness and different mandates of
In the last year, the SAIA has undergone major changes on a number of levels, both.
reflecting our efforts to ensure an industry body that is strong and relevant for all its
stakeholders. Although at times challenging, this has been an exciting and necessary OUR SECTOR
journey, signalling the need to adapt to the ever changing nature of our dynamic
economic environment and its complexities. The financial sector in South Africa continues to contribute significantly to the
economy of the country and it is important that the sector works together on
As we find ourselves in a changing economic environment and having embarked on addressing common challenges. One such potential challenge is the impact of a total
a process of transformation within the SAIA, with the goal to better address changing failure of the national electricity grid on the sector, which could have a major impact
needs, we now look to “Building a Common Future” with all our stakeholders. on the economy. Although this scenario is highly unlikely, the sector has been looking
at the potential impact together with the South African Reserve Bank under the
In order for us to build a common future on all fronts, we are acutely aware that auspices of the Financial Sector Contingency Forum and this work will continue going
fostering and cementing relationships with our stakeholders and strengthening the forward with a view to put together a plan to minimise the impact, which could be
image and the reputation of the industry is an imperative. Therefore, the SAIA severe.
adopted a strategic approach to create and establish a new strategic portfolio to
focus on full and meaningful engagements on all levels with key stakeholders, the OUR MARKET
Stakeholder Relations and Communications portfolio. Some strides have already
been made and we foresee that this portfolio will further entrench meaningful Our market continues to be highly competitive, but the current economic reality and
engagement with our stakeholders to achieve shared goals for the future. changing future regulatory landscape are bound to have an impact on our market.
We have already seen the first signs of a market that may have fewer role players in
OUR MEMBERS it going forward, as mergers and acquisitions are starting to come to the fore. It is
expected that this trend will increase going forward.
During 2014/15 we were reminded that representing sixty one (61) members of
different shapes and sizes is not only challenging, but also extremely important. In OUR CUSTOMERS
line with our theme of “Building a Common Future” the SAIA embarked on a very
inclusive process involving all our members in order to enable us to find a new The insurance industry cannot survive and thrive without our customers. In
vision, model and structure for the SAIA which would better serve the industry in the interest of our customers and a sustainable industry it is of vital importance
a changing and challenging environment. This process has resulted in a very clear that insurers remain financially sound and that customers are treated fairly and
picture of what it is that our members need and what the future SAIA should look appropriately. It is with this in mind that the SAIA and its members continue to
like. Although this journey is far from over, the support and input received from our support Government’s goals of creating a legislative and regulatory environment
members in the past year or so bodes well for a relevant and thriving SAIA in the that will achieve these outcomes, without creating any unintended negative
very near future. consequences. This has not been an easy process and will certainly continue to
challenge insurers going forward. The proposed regulatory changes, including
OUR WIDER INSURANCE INDUSTRY the Financial Sector Regulation (FSR) Bill, the Insurance Bill (SAM) including the
Reinsurance Regulatory Review, the Retail Distribution Review (RDR), Binder
We also realise that we are part of a larger insurance industry and that many issues Regulations, and the Market Conduct Policy Framework are and will be changing
of common interest and importance exist between the short-term insurance and things significantly and already require increased time and resources (human and
the long-term insurance industries. We have therefore embarked on a process of financial) from insurers. In addition, the overall economic impact of all these (and
discussions with the Association for Savings and Investment South Africa (ASISA) other) changes remains a cause for concern.
09Our Governance Risks department, together with our members, have therefore The Insurance Risks key priority area continued to assist in building a common
been kept extremely busy during 2014/15 to contribute to building this common future for all through our industry projects related to the above mentioned
future. challenges in 2014/15.
The industry is now coming to terms with the regulatory reforms to bring Motor insurance remains the biggest business class for the short-term insurance
South Africa in line with G20 standards and the core principles adopted by industry. The challenges faced by motor insurers to provide relevant and affordable
the International Association of Insurance Supervisors (IAIS) and this trend is products in an environment where only 35% of registered vehicles are insured, are
expected to continue for the next three years. still a major concern. Most of our activities in the motor insurance area are related
to the challenges around road safety, motor repair processes, vehicle crime and the
OUR COUNTRY call for compulsory third party motor property insurance. In the road safety arena,
the SAIA in 2014 initiated the “Business for Road Safety” Initiative together with
The short-term insurance industry is very close to all those who live and do various other business role players.
business in our country. We touch the lives of individuals and businesses by
protecting their assets and their livelihoods in so many ways and we are affected A SAIA Compulsory Third Party Motor Property Insurance Task Team initiated an
by everything that affects them including the levels of crime, the current energy intensified programme on this topic, including research, which is currently being
challenges being experienced, the challenges around road safety, food security, finalised. Much progress was also made in the repair process, which represents
earthquakes, the difficult economic environment, the currency fluctuations and the most challenging area for motor insurers because of the costs and intricacies
many more. involved. In this space, progress was made by the SAIA and its members – together
with the motor body repairer industry – in establishing a Motor Transformation and
Sustainability Forum (MTSF). The SAIA had an important high level meeting with
the National Association of Automobile Manufacturers of South Africa (NAAMSA)
in 2014 where it was agreed to jointly look into the cost – perceived or real –
of original motor vehicle parts with a view to address the cost of both motor
insurance and ownership of a vehicle.
We live in a world of increased risks related to environmental change; as well as
political, economic and social risk challenges. SAIA’s projects addressing topics
related to these risks showed good progress in 2014/15. These included a finalised
report on the impact of acid mine water on earthquake and other risks, progress on
the green geyser replacement project (which could greatly assist in taking pressure
off the electricity grid) and working together with the Departments of Agriculture
and National Treasury on a potential public private partnership in the agricultural
insurance environment.
Transformation in our country must be one of the key areas to which all role
players, including government and business, must give urgent attention. The
Financial Sector Code (FSC) aims to promote the establishment of an equitable
society for all South Africans. SAIA’s Transformation and Social Risks portfolio
has been kept busy with the alignment of the FSC to the Department of
Trade and Industry’s revised Codes of Good Practice for Broad-based Black
10Economic Empowerment. Our work related to enterprise development, statement and commitment in support of disaster risk reduction in 2014/15 and
procurement, human capital development and all the other important aspects continues to find ways to get closer to ClimateWise, within the constraints of our
of transformation continues and will increase in momentum going forward. limited resources as a small non-profit organisation.
We remain particularly proud of one of our flagship initiatives, namely
our Consumer Education Initiative, which also shows the advantages of OUR THANKS
partnerships. Our members have contributed a significant R80 million since its
inception in 2004 and our partnerships with the Financial Services Board and If we are to be successful in our vision of “Building a Common Future” it is imperative
the Department of Basic Education are much appreciated. to work closely with all important stakeholders in a positive spirit. We value our
relationships with others within our industry and our sector, as well as with the
One of the challenges that our industry is still struggling with is to promote and relevant authorities we work with. I would particularly like to thank National Treasury
increase access to short-term insurance. This is an area in which we need to and the Financial Services Board whose inclusive and consultative approach have
urgently find different ways of doing things and we urge the industry to become greatly assisted the industry in these changing,uncertain, demanding and, yes, trying
more innovative in appropriate product design and distribution. but exciting times.
Transformation is vital for our economy, our industry, our country, our In addition, our gratitude needs to be expressed to the SAIA Board and EXCO
societyand this is an area that urgently needs all role players to join hands to (under the inspiring leadership of our Chairman, Mr Themba Gamedze), and all our
build a better and improved future for all South Africans. I believe that a major members, who have demanded necessary change from the SAIA, but have then
mindset change is needed in this area. supported the process in such a way that we will be in a much stronger and more
relevant position going forward.
OUR CONTINENT
The success and legacy of an organisation is built by people. People are our most
The SAIA recognises that South Africa is part of the African continent and that important asset and I am particularly proud and thankful to the SAIA employees for
we need to be a part of the positive change in Africa. 2014/15 saw the SAIA their on-going passion and dedication to serve our stakeholder communities at the
remaining involved in the African Insurance Organisation (AIO), engaging with highest level, amidst the changed and volatile environment we find ourselves in.
many of our African counterparts with a view to learn from each other and we
assisted some regulators in Africa by sharing our experiences in creating ombud OUR SPECIAL THANKS
structures, fighting fraud and crime as an industry, implementing consumer
financial literacy projects, self-regulation and other areas in which we have In changing times, we often have to say farewell to people who served a cause well
learnt many lessons in the past. during the past. 2014/15 saw Barry Scott, the CEO of the SAIA of more than twenty
years, moving on to greener pastures. Barry contributed much in building a strong
Our members are also increasingly exploring business opportunities in Africa SAIA and we thank him for his years of service to the industry and the SAIA.
and this is expected to continue as a trend in the future. We also lost the valuable services of Suzette Olivier, our previous General Manager:
Governance Risks and wish to thank her for her hard and invaluable work.
OUR WORLD
We wish both of you all the best for the future.
The world has truly become a global village, with many of our members
expanding into various other countries across the globe. The SAIA is still actively
involved in the Global Federation of Insurance Associations (GFIA), works
with the United Nations Environment Programme Finance Initiative (UNEPFI)
and supported the UNEPFI Principles for Sustainable Insurance Initiative (PSI) VIVIENE PEARSON
11INDUSTRY RESULTS
Claims Ratio: Primary Insurers
2012 2013 2014
66% 67% 65%
61% 62% 63% 60%
55%
51% 51% 50% 50% 50% 50%
46%
42% 42%
35% 36% 38% 38%
30% 31%
24%
PRIMARY INSURERS: 31 DECEMBER 2014
Property Transportation Motor Accident & Health Guarantee Liability Engineering Miscellaneous
Claims continued to steadily increase in the Property class of business while the Guarantee and Liability classes of business experienced unusually
high claims during 2014. The Motor class of business (the largest line of business based on premiums) experienced a stable year. Claims incurred in
2014 were R43bn.
Asset Allocation:
Primary Insurers
Other assets
Outstanding
6%
premiums Shares
7% Debtors 27% Net premiums increased with approximately 10% in 2014 while
7%
the average consumer inflation for South Africa in 2014 was 6,13%.
The premiums paid to Reinsurers in 2014 were 26% of the total
Fixed assets
1% Gross Premiums reported.
Net Premium Split:
Government &
semi-government
Primary Insurers
13%
3% 3%
5%
2% Property
7% 33% Transportation
Cash and deposits Debentures and
Motor
38% mortgages
1% Accident & Health
Guarantee
45%
Cash and equivalent instruments remain the asset class of choice Liability
2%
given the nature of the short-term insurance industry’s risks. There were Engineering
no significant movements observed in asset allocation during 2014. MiscellaneousAssets, Liabilites and
Gross vs. Net Premium - Rbn
Capital Adequacy Requirement - Rbn
Primary Insurers Primary Insurers
Gross Premiums Net premiums R 140
R 120
R 102.8 R 100
R 96.2
R 87.7 R 80
R 76.3
R 68.6 R 60
R 64.7
R 40
R 20
R-
Dec-12 Dec-13 Dec-14
Total Assets R 102 R 112 R 119
Total Liabilities R 54 R 59 R 61
Dec-12 Dec-13 Dec -14 CAR R 18 R 22 R 23
Retention of insurance risks, based on premium, over the last year increased with 2,9%. Primary insurers experienced a healthy 6% growth in assets while the capital
Net retention for 2014 was at 74,3% of Gross Premiums. adequacy requirement increased with almost R1bn in 2014.
Profitability - Rbn The underwriting profit and the operating profit of the Primary Insurers over the last four years remained
Primary Insurers
relatively constant.
R 14
R 12
R 10
Profit as a percentage of Net Premium:
Primary Insurers
R8
R6 Operating profit/(loss) [incl. Investment Income] Underwriting profit/(loss)
R4
28
R2 26
23 22
R0
Dec-12 Dec-13 Dec-14 20 19 20 20 20
Underwriting Profit/(Loss) R 6.3 R 6.5 R 6.6
16 17 16 17 17 17
Underwriting and investment income R 11.0 R 11.4 R 12.0
14
11 11 10
Profitability for the Primary Insurers was encouraging, despite 9 8 8 8 9 9
6 7 7
the increase in profit of 4,8% coming in below the average
consumer inflation rate of 6,13% for South Africa in 2014. 0 1
-1
1999 2000 -22001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Note 1: The 31 December 2014 Quarterly Return Statistics are unaudited numbers and subject to potential revisions.
Note 2: All data obtained from the Financial Services Board (FSB) and reproduced with the permission of the FSB.
13INDUSTRY RESULTS
REINSURERS: 31 DECEMBER 2014
68% 67% 75%
29% 34%
39%
74% 67% 78%
Claims Ratio: Reinsurers
38%
2012
48% 55%
2013
29%
2014
68%
167%
27%
47% 40%
58%
97%
66%
Property Transportation Motor Accident & Health Guarantee Liability Engineering Miscellaneous
-28%
-71%
-86%
Some Reinsurers recorded higher than usual claims in the Guarantee class of business for the 2014 calendar year. Claims incurred in 2014 were
R1 756m.
Asset Allocation:
Reinsurers
Other assets
0% Net premiums increased by R528m in 2014 to R8,75bn which is
Debtors Shares
significantly more than the R72m increase experienced in 2013.
6% 17%
Outstanding
premiums Net Premium Split:
21%
Reinsurers
Government &
semi-government
Cash and deposits 27%
Fixed assets 3% 6% 2%
22% 2% Property
1% 1%
Transportation
36%
Motor
Accident & Health
Debentures and Guarantee
48%
mortgages
6% Liability
2% Engineering
An analysis of asset allocations over the last three years indicates no Miscellaneous
significant movements, with Government Bonds and Cash together
accounting for almost 50% of the total assets.Gross vs. Net Premium - Rm Assets, Liabilites and
Reinsurers Capital Adequacy Requirement - Rbn
Reinsurers
Gross Premiums Net premiums
R12
R 8 750
R 7 574 R 7 712 R10
R8
R 3 051 R6
R 2 451 R 2 523
R4
Dec-12 Dec-13 Dec-14 R2
R-
Net retention for 2014 was at 35% of Gross Premiums. In 2014 reinsurance payments Dec-12 Dec-13 Dec-14
increased. Total Asets R 9.30 R 9.39 R 9.59
Total Liabilities R 8.04 R 7.42 R 6.35
Profitability - Rm CAR R 0.90 R 0.87 R 0.97
Reinsurers
R 450 In 2014 Reinsurers reduced their risk exposures resulting in a
R 400
corresponding decrease in their Total Liabilities.
R 350
R 300
R 250
R 200
R 150
R 100
R 50 Underwriting profit remains under severe pressure however the return on investments continues to lend
R0
positive support towards the overall profitability of reinsurers.
-R 50
Dec-12 Dec-13 Dec-14
Underwriting profit/(loss) R 36 R 100 R -18
Underwriting and investment
R 393 R 369 R 264 Profit as a percentage of Net Premium:
income
Reinsurers
Despite net premiums increasing significantly in 2014, Operating profit/(loss) [incl. Investment Income] Underwriting profit/(loss)
Reinsurers collectively fared weaker during this calendar year.
Profitability however was restored primarily due to favourable 18
16 16 16
15 15 15
returns on investments. 13
14
13
12 12
10
9 9 9
8
7
6 6
4 4
1
Note 1: The 31 December 2014 Quarterly Return Statistics are -1
unaudited numbers and subject to potential revisions. 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Note 2: All data obtained from the Financial Services Board (FSB)
and reproduced with the permission of the FSB.
15INDUSTRY RESULTS
TYPICAL INSURERS: 31 DECEMBER 2014
65% 67%
62%
44%
63%
23%
66% 68% 65%
Claims Ratio: Typical Insurers
39%
36%
2012
42%
2013 2014
39% 39%
48%
52%
67%
47%
54%
49%
42%
49%
63% 61%
Property Transportation Motor Accident & Health Guarantee Liability Engineering Miscellaneous
Typical insurers generally experienced lower claims in 2014 when compared to 2013. The Guarantee class of business was noticeably higher
corresponding to the increase in the claims ratio of Reinsurers; for the same class of business. Claims incurred in 2014 were R33,1bn.
An increase of R6bn in net premiums and a flat claims experience resulted in Net Premium Split:
a significantly higher underwriting profit for Typical insurers than in previous Typical Insurers
years. Good investment returns also bolstered the overall profitability of
Typical insurers.
4% 1% Property
2% 1% 4%
Profitability - Rbn Transportation
Typical Insurers 32%
Motor
R8
Accident & Health
R7 54% Guarantee
2%
R6 Liability
Engineering
R5
Miscellaneous
R4
R3
R2
Motor and Property equated to more than 85% of the total Net
R1 Premium of Typical Insurers.
R0
Dec-12 Dec-13 Dec-14 Note 1: The 31 December 2014 Quarterly Return Statistics are unaudited
Underwriting profit/(loss) R 2.9 R 1.8 R 4.7
numbers and subject to potential revisions.
Underwriting and investment
income
R 5.6 R 4.5 R 7.3 Note 2: All data obtained from the Financial Services Board (FSB) and
reproduced with the permission of the FSB.INDUSTRY RESULTS
Claims Ratio: Cell Captive Insurers
2012 2013 2014
300%
242%
CELL CAPTIVE INSURERS: 31 DECEMBER 2014
174%
149%
118%
98%
75%
62% 64% 63% 65%
54%
37% 43% 39% 40%
25% 31% 32% 29% 24% 25%
22% 22%
Property Transportation Motor Accident & Health Guarantee Liability Engineering Miscellaneous
Some Cell Captive Insurers experienced higher than usual claims in the Property, Guarantee, Liability and Engineering classes of
business. Claims incurred in 2014 were R6bn.
Net Premium Split:
Cell Captive Insurers
The higher than usual claims experienced in 2014, had a significant impact on
the profitability of Cell Captive Insurers during this calendar year. Property
-1% 4%
0% Transportation
Profitability - Rbn 10% 28%
Cell Captive Insurers 21%
Motor
Accident & Health
R2
30% 6% Guarantee
R2
Liability
Engineering
R1
Miscellaneous
R1
R0 Accident and Health classes of business are significantly
prevalent within Cell Captive Insurers, increasing by 2%
-R 1 in 2014 when compared to 2013.
-R 1
Dec-12 Dec-13 Dec-14
Note 1: The 31 December 2014 Quarterly Return Statistics are
Underwriting profit/(loss) R 0.83 R 1.12 R -0.65
unaudited numbers and subject to potential revisions.
Underwriting and investment
R 1.47 R 1.76 R 0.17 Note 2: All data obtained from the Financial Services Board (FSB)
income
and reproduced with the permission of the FSB.
17INDUSTRY RESULTS
CAPTIVE INSURERS: 31 DECEMBER 2014 35%
91%
79%
126%
11% 13%
95%
76% 79%
Claims Ratio: Captive Insurers
57%
79%
2012
126%
2013
0%
2014
13%
49%
34% 36%
29%
4%
45% 40%
63%
Property Transportation Motor Accident & Health Guarantee Liability Engineering Miscellaneous
-43%
-53%
Captive Insurers experienced a varied claims year with some classes of business higher and others lower when compared to previous years.
Claims incurred in 2014 were R210m.
As is to be expected Liability is the largest class of business for
Captive Insurers at 47% of Net Premium. This class of business
Three of the ten Captive Insurers reported underwriting losses for the grew by 6% from 2013 to 2014.
2014 calendar year.
Net Premium Split:
Captive Insurers
Profitability - Rm
Captive Insurers Property
1% 0%
R 400
Transportation
R 350 28%
Motor
R 300 47%
Accident & Health
R 250
17% Guarantee
R 200 5%
Liability
2%
R 150
0% Engineering
R 100
Miscellaneous
R 50
R0
Dec-12 Dec-13 Dec-14
Note 1: The 31 December 2014 Quarterly Return Statistics are unaudited
Underwriting profit/(loss) R 182 R 240 R 140
numbers and subject to potential revisions.
Underwriting and
R 286 R 348 R 269 Note 2: All data obtained from the Financial Services Board (FSB) and
investment income
reproduced with the permission of the FSB.INDUSTRY RESULTS
Claims Ratio: Niche Insurers
2012 2013 2014
156%
119%
NICHE INSURERS: 31 DECEMBER 2014 58% 36% 47% 54% 43%
61%
49% 53% 41%
41% 48% 34% 45%
31% 34% 35%
31% 15% 18%
19% 18% 15%
Property Transportation Motor Accident & Health Guarantee Liability Engineering Miscellaneous
Engineering and Liability claims were significantly higher in 2014 than reported in the 2013 year. Other lines of business were relatively
stable when compared to previous years. Claims incurred in 2014 were R3,7bn.
Net Premium Split:
Profitability remained relatively healthy for the Niche Insurers with Niche Insurers
returns on investments adding considerably to the overall profits.
Property
Profitability - Rbn
Niche Insurers 0.6% Transportation
5.9% 11.8%
R6
40.1% Motor
R5
14.4%
Accident & Health
R4 18.7% 8.1% Guarantee
R3 0.3% Liability
Engineering
R2
Miscellaneous
R1
Property, Accident & Health and Guarantee classes of
R0
Dec-12 Dec-13 Dec-14 business made up almost 75% of the total Net Premiums of
Underwriting profit/(loss) R 2.4 R 3.3 R 2.5
Underwriting and investment income R 3.6 R 4.8 R 4.3 Niche insurers in 2014.
Note 1: The 31 December 2014 Quarterly Return Statistics are unaudited numbers and subject to potential revisions.
Note 2: All data obtained from the Financial Services Board (FSB) and reproduced with the permission of the FSB.
1901 SAIA KEY STRATEGIC AREA
TRANSFORMATION
AND SOCIAL RISKSO
OUR LATE PRESIDENT Nelson Mandela noted in an address on Freedom Day in Because of the unique position of the Financial Sector in the South African economy
1998 “all the oppressed have united and taken their destiny into their own hands; and its role in the development of the economy, it is necessary for the sector to
and the oppressed and former oppressors have together accepted responsibility for have a Transformation Code that reflects the unique challenges and activities that the
a common future”. As we look back on the last year, we see how the Transformation sector can undertake to promote transformation and economic growth.
and Social Risks portfolio exercised that responsibility.
Following the FSC negotiations, the FSC has been revised. As with all negotiations,
THE FINANCIAL SECTOR CODE we have had to make compromises on certain areas. However, none of these has
been contrary to the original mandate received from our members. The highlights of
The Financial Sector Code (FSC) commits participants to “actively promote a the revised FSC are:
transformed, vibrant and globally competitive financial sector that reflects the 1.1. Ownership, Management Control and Enterprise and Supplier Development
demographics of South Africa, and which contributes to the establishment of an will be priority elements. This is in line with the revised Codes.
equitable society by providing accessible financial services to black people and by
directing investment into targeted sectors of the economy.” The FSC is the financial 1.2. Management Control (MC) and Skills Development (SD) will not use the
sector’s commitment to building a common future for all South Africans. It is, Economically Active Population (EAP) formula as in the revised Codes. For
therefore, fitting that the focus of the Transformation and Social Risks portfolio this the MC scorecard, additional line items and targets have been created in all
past year was on the realignment of the FSC with the revised Department of Trade management categories for African staff. This has a similar effect to the EAP
and Industry (DTI) Codes of Good Practice (the revised Codes), for Broad-based formula, in that institutions obtain additional points for having African staff in
Black Economic Empowerment. management positions, without creating a “quota” system.
The revised Codes were gazetted on 11 October 2013 and become effective on 1 1.3. For the SD scorecard, we have agreed to split targets for different categories
May 2015. The revised Codes aim to address some of the problems identified since of staff, with the lowest percentage being allocated to senior and executive
the introduction of the original Codes in 2007. A study done by the DTI showed the management and the highest percentage being allocated to unskilled staff and
following: external beneficiaries. The different targets concentrate training on upskilling
• 33% of surveyed large enterprises had zero Black Ownership and only 9% of lower level staff. An additional line has been included for each category of skills
enterprises had more than 90% Black Ownership - this reflects poorly on the spend for black women; this effectively gives institutions double points for
level of penetration of Black Ownership within large enterprises; training black women.
• Ownership, Employment Equity and Skills Development elements showed slow
progress on transformation; 1.4. For Enterprise and Supplier Development (ESD), the procurement targets are
• Average BEE levels per sector range between Level 4 and level 5 (largely due being phased in over 3 years. The targets for EMEs (companies with a turnover
to small and medium enterprises). Therefore, more needs to be done across all below R10 million p.a.) will be 12% and the target for QSEs (companies with
sectors of the economy to achieve meaningful transformation; a turnover between R10 million and R50 million) will be 18%. The target for
• Small and medium enterprises showed the highest levels of transformation, with 51% black-owned businesses will be 30%. The target for 30% black women-
greater levels of transformation needed in large enterprises. owned businesses will be 10%.
The revised Codes fundamentally change BEE policy and the way it will need to be 1.5. For ESD, reinsurance premiums will continue to the excluded from Total
implemented by businesses. Although (in most sectors) there are no legal obligations Measured Procurement Spend. Broker commissions will be included in
to have a BEE Certificate, it is a requirement when dealing with Government entities Total Measured Procurement Spend, but only after the first 3 years of the
and the private sector has been requiring their suppliers to be BEE compliant for a implementation of the revised FSC.
number of years. Being BEE compliant has, therefore, become a business imperative
for the majority of businesses operating in South Africa. 1.6. Consumer Education has been moved out of the Access scorecard and
21has been included as a separate line item on the Socio-economic
Development (SED) scorecard. This was done because some institutions
have erroneously been receiving exemption from Consumer Education
and this will prevent the situation occurring in future. Reinsurers will
continue to be exempt from Consumer Education.
1.7. No changes are being made to the Access scorecards. We have received
approval from all charter constituencies to review the Access standards
once the revised FSC has been finalised.
1.8. The Empowering Supplier definition has been changed to one more
suitable for the industry.
The revised FSC will be submitted to the Minister of Finance at the end of
March 2015 for approval. The Minister will then submit the revised FSC to the
Minister of Trade and Industry for gazetting for public comment for a period
of 60 days. After which the comments will be considered and the revised FSC
gazetted under Section 9(1) of the B-BBEE Amendment Act.
THE SHORT-TERM INSURANCE ACCESS TARGETS
The SAIA successfully negotiated that the Access targets contained in the FSC be
phased in for short-term insurance products over a number of years. The new
year targets are as per the table below.
30/06/14 30/06/15 30/06/16 30/06/17 30/06/18
Product Line Year 1 Year 2 Year 3 Year 4 Year 5
Personal 30% 45% 60% 75% 100%
Commercial 50% 60% 70% 80% 100%
The phasing-in of the targets will allow members more time to either develop
new products aimed at the emerging market or to modify existing products.
HUMAN CAPITAL DEVELOPMENT
This initiative was introduced by the SAIA, Insurance Institute of South Africa
(IISA), Financial Intermediaries Association (FIA), South African Underwriting
Managers Association (SAUMA) and Insurance Sector Education and Training
Authority (INSETA). Its vision is to benchmark, measure and facilitate
22professional qualifications and transformation within the short-term insurance
industry. The goals of this initiative are:
• To develop a professional standards declaration that all insurers, brokers,
reinsurers and underwriting managers are able to sign up to.
• To establish a central database that will provide a credible source of data of the
status and trends concerning the human capital profile of the industry, namely
gender, race, qualifications and scarce and critical skills.
• To align qualifications and standards that will be reflected in a career guide.
• To put a pilot in place to implement a black broker development programme.
• To define skills development programmes developed to equip the industry to
provide insurance to the emerging market.
• To provide a “youth attractor pack” for use by the industry. This pack will be
used to create awareness about insurance careers and to attract learners to
study insurance qualifications. The pack will provide clear guidance for those who
wish to enter the industry and to assist current employees within the industry to
identify a career path they would like to follow.
• To be a central advocacy voice for the human capital development of the
industry.
• To develop a career path framework for progression to management levels and
technical specialisations.
INSETA funded research into the skills the industry has and will need going into the
future; this research will inform the skills development priorities of the industry over
the next three years.
The Hyde Park Accord was launched at the 2014 Insurance Conference. The Hyde
Park Accord sets out a clear vision for an era of professionalism in the financial
services industry. Industry stakeholders sign a guideline as their commitment to
conducting their businesses according to exacting professional standards. It is not a
formal contract, but one that requires companies to act in good faith as a supporter
of the principles contained in it.
Another outcome of this project has been the qualifications framework for
occupations document. The document is intended to align job profiles with required
qualifications and knowledge and to set out a clear career path for new and current
employees.
CONSUMER EDUCATION
This continues to be a crucial initiative for the industry in terms of promoting financial
23literacy among the emerging market, as well as knowledge about the short-term
insurance industry and its various products.
Since its inception, SAIA members have contributed almost R78 million towards
the SAIA Consumer Education Initiative through the pooling of funds. This has
enabled the SAIA to implement various projects on behalf of its members, as
stipulated by the Financial Sector Code.
The SAIA Consumer Education Projects
n Radio Financial Literacy Project
This project is based on the successful Financial Education Fund (FEF)-sponsored
project, which was initially implemented in 2010 on four public service radio
stations. The project involves a 26-episode financial drama series aimed at
creating awareness and understanding on healthy financial management practices
as well as short-term insurance products and services. Each episode is followed
by a call-in session where listeners’ questions are answered by an industry expert.
For the 2013/14 consumer education campaign, the radio project was extended
to the last three remaining public service radio stations not previously part of the
project, Umhlobo Wenene FM, Ligwalagwala FM and Munghana Lonene FM.
This completed the full roll-out of the radio project to all public service broadcast
radio stations across all eleven official languages. The Financial Services Board
(FSB) partnered with the SAIA on the Radio project and contributed R400 000.
The total cost of the project was R4 187 557,44.
n Next of Next Week
An exciting new project was launched called “Next of Next Week”. This project
consisted of 52 three-minute episodes of edutainment comedy series on financial
literacy. The series was broadcast on e.tv.
The objective of the comedy series is to encourage people to start practicing
sound financial practices “today” and not “next of next week” (a colloquial term
used in the townships, referring to procrastination). This project cost R3 243
766. The series was well received by the audience, with ratings showing an
increase in viewership during the broadcast of the series. E.tv’s band performance
for May and June 2014 indicated a consistent viewership of approximately 1,5
million viewers for the series. The channel has advised that this is a high number
for an insert to generate, attributing this to the content of the series.
24n Soul City Drama Series n Industry Support for the NDP
The SAIA Consumer Education Initiative was one of the sponsors and SAIA has identified the following key focus areas where the industry can support the
contributors to the Soul City Drama Series. This project was aimed at NDP:
promoting financial literacy among the South African public through the 1. Job creation through Enterprise Development (ED) programmes.
primetime weekly television series aired on SABC 1. 2. Quality education and skills development support through our Human Capital
Development initiative and ensuring that Socio-economic Development (SED)
The TV series, which was accompanied by print, radio, training and social and Corporate Social Investment (CSI) initiatives are focused on education. The
mobilisation activities dealt with four interrelated topics, including Financial teacher training initiative of the Consumer Education project supports this aspect.
Literacy. These topics were interwoven seamlessly into a compelling 3. Community development through ED, SED, Consumer Education initiatives and
storyline with messages on budgeting, saving, access to financial products inclusive procurement practices.
and other social issues. The SAIA’s contribution to the Soul City project 4. Food security through agricultural insurance initiatives.
followed a request by the National Treasury for the financial sector to 5. Tackling youth unemployment through internship programmes.
participate. The SAIA contributed R4 million to the project. 6. Transition to a low-carbon economy can be supported through programmes
such as the Green Geyser project.
The episodes that have a story line on short-term insurance have attracted 7. Transformation and unity can be supported through inclusive procurement
discussion from the audience during Soul City’s live social media chats with practices, compliance with the Financial Sector Code, employment equity
various insurance experts. initiatives and financial inclusion.
ENTERPRISE DEVELOPMENT The SAIA has established a Working Group of the SAIA Board that will drive the
industry’s support of the NDP.
At the SAIA Board meeting held on 9 September 2014, the Board agreed
to SAIA establishing an industry Black Broker Development project.
SAIA has met with the Association for Savings and Investment South
Africa (ASISA) Foundation CEO, who has indicated that the SAIA
Enterprise Development project can be run through the ASISA Enterprise
Development fund. The SAIA Enterprise Development committee will be Leila Moonda
meeting to agree on the proposed framework of the project. General Manager:
Transformation and Social Risks
THE NATIONAL DEVELOPMENT PLAN
The National Development Plan (NDP) is a plan for the country to
eliminate poverty and reduce inequality by 2030 through uniting South
Africans, unleashing the energies of its citizens, growing an inclusive
economy, building capabilities, enhancing the capability of the state and
leaders working together to solve complex problems. The NDP sets
out ambitious goals for poverty reduction, economic growth, economic
transformation and job creation. The private sector has a major role to play
in achieving these objectives.
2502 SAIA KEY STRATEGIC AREA
STAKEHOLDER
RELATIONS AND
COMMUNICATIONA
AS A REPRESENTATIVE BODY of the short-term insurance industry, strong and the SAIA Code of Conduct by our members reflects an industry that not only adheres
healthy stakeholder relationships and effective communication play a pivotal role to high standards but regulates itself with the aim to offer fair value and good service to
in ensuring the SAIA’s success in delivering on its mandate. Over the years, the consumers. The SAIA aims to have its members recommit to the Code annually.
association has been able to build such strong relationships with its stakeholders, while
enhancing its communication efforts. However, in recent times, due to the changing MEDIA RELATIONS
economic environment, there has been a need for a renewed focus on stakeholder
engagement and communication, particularly in light of the image and reputation In 2014, for the second year running, the SAIA hosted a media breakfast session where
challenges facing our industry. key journalists from both print and the electronic media were invited. The theme
for the event was on Enterprise Development, a sector which is high on the national
It is in this regard that the Stakeholder Relations and Communication department was agenda. A panel discussion saw some of our member chief executives debate the
established in July 2014 as a key strategic area for the SAIA, focusing on meaningful importance of enterprise development and how the industry can make a contribution
engagement and the building of enduring relationships with all the industry’s through various initiatives. We will continue to host similar events annually as they
stakeholders, while refining and extending its efforts to communicate more effectively. provide an important platform to discuss key topics not only relevant to the media but
The department also serves as a mandatory function to coordinate, guide and advise also to other stakeholders.
other SAIA strategic areas on stakeholder relations, communication (including media
relations) and marketing matters. It also needs to be mentioned that 2014 saw an elevation of the SAIA’s profile in the
media due to a more prominent and positive media presence. This was measured and
THE SAIA’S IMAGE AND REPUTATION STRATEGY based on the increased publicity received by the SAIA in both the national and trade media.
To enable the effective delivery of its mandate, the Stakeholder Relationship and BUILDING RELATIONSHIPS BEYOND OUR BORDERS
Communication department began with the process of reviewing SAIA’s existing
Image and Reputation strategy to align it with the changing environment as well as to Finally, our efforts to foster and strengthen relationships, which extend beyond our
the current needs of SAIA members and other key stakeholders. While this strategy borders, continued to grow in 2014. The SAIA represented the interests of the
still remains relevant, effective stakeholder engagement and advocacy have been industry internationally and on the continent through participating in various bodies
highlighted as needing particular attention. The revised SAIA Image and Reputation such as The BRICS Reinsurance Forum, The African Insurance Organisation (AIO),
strategy pays heed to this important aspect and outlines ways to address it. The Global Federation of Insurance Associations (GFIA) and the Association of Insurers
and Reinsurers of Developing Countries (AIRDC) among others. We also forged good
With regard to enhancing its communication efforts, the Stakeholder Relations and relationships with other African trade associations such as the Insurance Association of
Communication department established a Communication Committee to provide Zambia (IAZ), Ghana Insurers Association (GIA), Nigerian Insurers Association (NIA)
support to the SAIA on industry issues. The committee’s purpose is to coordinate and the Insurers Association of Mauritius (IAM). The SAIA will continue to enhance
an industry forum on insurance matters from an image and reputation point of view. these relationships through engaging and sharing information with our continental
It also guides in developing a rapid response to our stakeholders on industry issues, counterparts.
ensuring that the SAIA provides transparent, accurate and timely communication.
Lelo Ntshalintshali
THE SAIA CODE OF CONDUCT General Manager:
Stakeholder Relationships
A sufficiently self-regulated industry is one of the cornerstones of a successful image and Communication
and reputation strategy for the industry. The year under review saw the relaunch of
the SAIA Code of Conduct, with members recommitting to adhering to the Code at a Claire Norman
symbolic signing ceremony during the SAIA Annual General Meeting. Commitment to Manager: Communication
2703 SAIA KEY STRATEGIC AREA
GOVERNANCE RISKSG
GOVERNANCE RISKS: THE FOUNDATIONS FOR THE NEW THE MOVE TO A “TWIN PEAKS” MODEL OF FINANCIAL
REGULATORY ARCHITECTURE REGULATION
A builder will tell you that the strength of any structure lies in its foundation. The move to a “Twin Peaks” Model of financial regulation has been noted as the most
Likewise, the strength of our regulatory system lies in its legal framework. The South significant financial sector reform in 25 years, since the enactment of the Banks Act
African financial services industry, in working together with Government, has made and the establishment of the Financial Services Board in the nineties. The National
substantial progress in strengthening governance, ameliorating business practices Treasury (“NT”) policy documents, entitled “A safer financial sector to serve South
and ensuring better outcomes for its customers. The next three years will be crucial Africa better” (February 2011) and “Implementing a Twin Peaks model of financial
in responding appropriately to and supporting current and proposed regulatory regulation in South Africa” (1 Feb 2013), paved the way for the regulatory reforms
reforms and interventions, thus cementing the building blocks of a strong and proposed in the Financial Sector Regulation (“FSR”) Bill, 2014, published in December
resilient financial sector in the interests of all stakeholders. 2014 for public comment by 2 March 2015. This voluminous second draft of the FSR
Bill contains some major changes from its predecessor. The Bill will impact the financial
INTERNATIONAL DEVELOPMENTS sector substantially as the first step towards establishing the legal framework for the
new regulatory model.
The eighth Annual World Insurance Report 2015, published by Capgemini
Consulting and EFMA, ranks regulatory change as second in the top three disruptive The SAIA submitted its comments on the Bill by the due date and it is anticipated that
forces dramatically affecting the insurance landscape on a global scale this year. a third (and probably final) draft of the Bill will be tabled in Parliament by the end of
The report includes interviews with executives of many international insurance the second quarter of 2015. The two new regulators to be established, namely the
companies and some local players, and cites big data analytics as the main disruptor Prudential Authority (“PA”) within the Reserve Bank and the Financial Sector Conduct
impacting the insurance industry globally. Authority (“FSCA”) to replace the Financial Services Board, will operate within the
framework of the FSR Bill, once enacted, and existing industry-specific legislation,
South Africa is in the process of building its financial sector to align with international pending phase two of the reforms. The second phase of the implementation
standards. As member of the G20-led Financial Stability Board (“FSB”), South process will focus on revising and consolidating current sector-specific legislation
Africa has committed to undergoing the International Monetary Fund-World Bank into a Conduct of Financial Institutions (“CoFI”) Bill. From a licensing perspective, it
Financial Sector Assessment Programme (“FSAP”) assessment every five years and is envisaged that all financial institutions will need to obtain a licence from the FSCA
a Financial Stability Board peer review every two to three years thereafter. As part and, in the event that an institution is regulated by the PA in terms of the FSR Bill,
of this commitment, South Africa underwent two international peer reviews of its a separate additional licence from the PA. Robust consultation and coordination
financial sector regulatory system in 2013 and 2014, respectively, following which between the policymaker and the industry will be required to understand the
reports were published providing insights into the progress of implementing planned relicensing process in detail so as to minimise complexity and curtail cost for both the
financial reforms. Regulators and the industry.
The 2013 FSB Peer Review reported that while the reforms do not seem to Funding of the new authorities is expected to be through industry levies, the detail of
reduce the overall complexity of the South African regulatory system in terms of which will be outlined in the upcoming Financial Sector Levies, Fees and Charges Bill,
the number of agencies involved in regulation and supervision, it is likely to provide expected to be issued for comment later in 2015.
more clarity in the assignment of responsibilities and the application of related
expertise. The report cautioned that the introduction of a new regulatory structure MARKET CONDUCT REGULATORY FRAMEWORK
will require careful planning as South Africa is simultaneously tightening rules for
regulated financial institutions and extending the borders of regulation to comply Simultaneously with the FSR Bill, the NT issued its draft Market Conduct Policy
with international standards. Framework, entitled “Treating Customers Fairly in the Financial Sector - A draft
Market Conduct Policy Framework for South Africa”, painting a bleak picture of the
29way financial institutions treat their customers and confirming the second phase
of market conduct reform developments. The draft framework sets out a market
conduct strategy for each of the subsectors in the financial services industry. Focus
for the short-term insurance industry is set to be around improved product design,
improved disclosure, advertising and marketing standards, non-conflict distribution
models and setting higher accountability for insurers for their business conduct.
The overarching framework will be substantially more forward-looking,
comprehensive, intensive and intrusive with the aim of aligning it to the key guiding
principles for market conduct set out in the “Twin Peaks” policy proposals.
TREATING CUSTOMERS FAIRLY
For most short-term insurers, Treating Customers Fairly (TCF) transformation has
surpassed implementation phase and is now considered part and parcel of business
going forward. Insurers have devolved TCF principles into individual company-
tailored initiatives and strategies being applied to business practices from the top
down.
One of the implications of the broader regulatory reforms in the financial services
industry has been that insurers have had to go back to the drawing board and
scrutinise their treatment of their customers throughout the life cycle of a product,
starting with product design, and ensuring that appropriate products are developed
for the relevant target market.
From the Regulator’s side, TCF principles are being applied to developments around
all phases of supervision and conduct of business regulation and financial institutions
are expected to demonstrate a culture of fair treatment of customers in all business
dealings.
This is evident in dedicated regulatory projects underway in which SAIA actively
participates and which include:
1. Improving on the current disclosure framework through the development of Key
Information Documents for Motor and Household Contents products;
2. Reviewing of advice, remuneration and distribution models through the Retail
Distribution Review;
3. Requiring the development and implementation of Complaints Management
Processes that meet minimum standards; and
4. Revising the competency framework for intermediaries.
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