Insurance companies will now undergo monthly audits to ensure their assets are sufficient to cover their clients' properties in the event of loss.
Government last week gazetted the new regulations that will, among other things, ensure minimum prescribed asset ratios for insurers as announced by Finance and Economic Development Minister Mthuli Ncube in the 2019 National Budget Statement.
Under the new regime, insurance companies will be required to conduct self-assessment to prescribed ratios within 14 days after the end of every month based on management accounts.
The provisions empower the insurance industry regulator, the Insurance and Pensions Commission (IPEC), to take punitive or corrective measures to enforce compliance with the prescribed asset requirements, amid indications the insurers have been struggling to comply.
Insurers have reportedly been lobbying for the prescribed asset ratios to be reduced considerably to give them latitude to invest in operations for improved performance.
Prescribed assets are the percentage of retirement funds' assets (and possibly of other institutional investors) that, by law, have to be allocated to certain Government-approved instruments.
Assets are prescribed because of insufficient demand for them based on their investment merits.
In other words, if the assets had sufficient investment merits, there would be no need to prescribe them.
The measures to be administered by IPEC are contained in Statutory Instrument 206 of 2019 otherwise known as Insurance (Amendment) Regulations of 2019 (No. 22).
Registered life insurers will have a minimum prescribed assets ratio of 15 percent of total market value, while funeral assurance, non-life insurance and reinsurance business will be required to have 10 percent of total adjusted value.
Composite companies conducting both life and non-life business shall have 15 percent of the adjusted value of the respective component of the business and 10 percent of insurance business other than the entity's life business.
"Every insurer shall conduct a self-assessment to prescribed assets ratios within 14 days after the end of each calendar month based on management accounts," reads the SI.
An insurer that fails to comply with the new prescribed asset ratios is required to, within 30 days from the date it becomes aware of such, advise IPEC of the non-compliance and take corrective plans within a period of six months.
If the plan is not submitted or accepted by the commission, the insurer or reinsurer fails to implement within a given period, IPEC is empowered to take any of punitive or corrective measures provided for in the regulations.
These include imposition of additional reporting requirements, delay or refusal by IPEC to approve new products, imposition of a fine up to Level 3, disqualification, removal, suspension and or condemnation of any person, including principal officer, director or senior manager of defaulting entity.
Further, IPEC may cause the insurer's financial resources or investments to be liquidated and be channelled towards investment in any financial instrument with the unfilled prescribed asset status.
IPEC may also prohibit the defaulting entity from declaring or paying dividends or other payments as the commission may deem or prohibit the disposal of assets of the insurer unless the disposal is meant to invest the proceeds prescribed assets, as regulated.
The regulations further provide that where an insurer fails to comply with the actions taken by the regulator or conditions imposed by it, the commission may cancel the insurer's licence in terms of Section 6 of the Insurance Act.
The minimum prescribed asset thresholds for both short-term non-life insurers and reinsurers were doubled in November last year, through the 2019 National Budget, from 5 to 10 percent; life assurers from 7,5 to 15 percent, while funeral assurers increased from 7,5 to 10 percent.