Transcript Slide 1
SAUMA CONFERENCE
May 2012
A Member of the
Group
Authorised Financial Services Provider
What are the driving forces in our industry?
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Abundance of Regulation
Direct growth
Uncertain financial environment
Heightened consumerism
Impact of technology
War on talent
How will these trends impact UMA’s?
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Abundant Regulation
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To
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name but a few:
Binder Regulations
FSLGAB
SAM
TCF
CPA
Micro-insurance
FAIS Regulations – RE Exams
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Attempt to regulate Life, Investments and Short-term has made it
very confusing, therefore, we need to consider intent:
– Eliminate conflicts of interest
– Create greater transparency
– Ensure enforceability
– Provide financial security
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Regulation is a response to a system that has got out of control – how
many consumers understand who they are buying protection from and
who is getting paid for doing what?
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Direct Growth
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A wake-up call for traditional insurers
Has driven cost of insurance down
A catalyst for innovation
Expanding into other areas: Life, Commercial….
Tarnished the role of advice
Increased awareness of insurance
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Short-Term Insurance
Advertising Spend
Mar 11 to Feb 12 Totals only
270,000,000
260,000,000
250,000,000
240,000,000
230,000,000
220,000,000
210,000,000
200,000,000
190,000,000
180,000,000
170,000,000
160,000,000
150,000,000
140,000,000
130,000,000
120,000,000
110,000,000
100,000,000
90,000,000
80,000,000
70,000,000
60,000,000
50,000,000
40,000,000
30,000,000
20,000,000
10,000,000
0
1ST FOR
WOMEN
Grand Total 42,233,240
ABSA
IDIRECT
AUTO
GENERAL
5,417,888
5,278,906
AA
BUDGET
DIAL
DIRECT
HIPPO
Total A-T-L Spend
Mar11– Feb12: R1 114 800 mil
HOLLARD
IWYZE
MIWAY
MUTUAL & OUTSURAN
PROSPER
FEDERAL
CE
42,043,378 80,554,243 49,526,532 76,356,403 249,890,97 87,283,343 92,588,633 57,767,886 218,918,90
0
SANTAM
ZURICH
104,470,51
2,469,516
Uncertain financial environment
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Global credit crisis caused panic
Solvency II - SAM
Knee-jerk reaction?
– 2011 the second worst CAT year in history
– Liquidations post credit crisis?
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Economic Losses by Year and Type
2011 economic losses to date are approaching USD400 billion while the average
from 2004 to 2010 was USD89 billion
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Heightened consumerism
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TCF is over-arching response
– Uncertain impact, however, experience in UK is that it will have
significant impact
– Impact on product offerings?
Power of social media might outweigh impact of regulation –
consider Absa example
Over-regulation is also a risk to consumers
– Less clarity
– Increased cost
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Impact of technology
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Moore’s law
A catalyst for disintermediation?
Encourage entrepreneurship
A vicious circle?
Easier Entry
Increased
Regulation
Multitude of
Players
Heightened
Competition
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War on talent
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Shocking statistics
Are we doing enough to attract talent?
Have we as an industry embraced diversity?
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War On Talent
Table 2-4 Projections of the demand for labour in the insurance sector to 2010
A
B
C
D
E
F
G
(B+C+D)
Occupational
group
Current
employment
Retirement
Mortality
Leaving the
Sector
(E+F)
Total
Replacement
Demand
New
employment
Total
Positions
to fill
Managers
14 789
591
295
443
1 329
295
1 624
Professionals
26 672
800
533
3 200
4 533
2 133
6 666
1 872
56
37
224
317
74
391
342
0
6
10
16
13
29
Clerical and
Administrative
Workers
45 249
904
904
2 262
4 070
2 262
6 332
Sales Workers
13 931
278
278
696
1 252
696
1 948
267
5
5
13
23
10
33
Technicians and
Trade Workers
Community and
Personal
Service
Workers
Machinery
Operators
and Drivers
Elementary
Workers
Total
131
1 024
20
20
51
91
40
103 744
2 654
2 078
6 899
11 631
5 523
17 154
War on talent
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Shocking statistics
Are we doing enough to attract talent?
Have we as an industry embraced diversity?
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So what is the future of the UMA in this changing
environment?
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Solution for Administrators
Important diversifier for SAM
Talent magnet?
Innovation driver
But…….
Potential risks:
• Increased cost
• Consolidation
• Growing disintermediation
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Questions Please!
Appendices
The Binder Regs provide for:
•The UMA must provide all data relating to the binder function
•It refers to the Statutory Actuary and auditors
•It refers to ad–hoc information requests
•It reiterates that the UMA is the agent of the insurer and the insurer holds
the contract it states very clearly that a UMA has no right to withhold
information
Weaknesses of previous solvency regime
Not risk sensitive
Only takes account of Net Written Premium. ( ±25% of NWP)
Insurance classes written have no bearing on requirements.
No Account taken of actual exposure in classes written
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sub prime mortgage crisis in the US is a prime example of why this is
important
Under Reserving has no impact on solvency requirement – in fact it increases your
available capital (7% IBNR requirement – not appropriate across all lines)
Credit, Market & Operational risk not properly taken into account
Solvency could be put at risk by a drop in asset values – need to balance risk and return
Unforeseen claims at the time of writing policy – e.g. asbestosis claims
Quality of reinsurers used
Where we invest our money
Poor information on the extent of losses
Failures to recover from external events (e.g. flu virus affecting ½ the staff)
Weaknesses of previous solvency regime
Solvency calculation based on past data (not forward looking)
Planned expansions; significant discounts have no impact on Solvency
Under Pricing has been factor in most company failures
Writing large volumes of unprofitable business / Poor information on extent of losses
No allowance for risk mitigation
Reinsurance
Diversification between lines of business
Management actions (lowering expenses, buying more reinsurance)
Very few requirements for proper risk management & good corporate governance
Insurance is a complicated business – easy to go wrong through sheer incompetence
Message to staff; Grow the business – kick of a series of chain events
Accounts are relatively easy to manipulate – overstating the profit & solvency (All this
within the law)
Poor management of Outsourcing functions
Three Pillar Approach
1.
New way to value liabilities, determine capital, and calculate required capital
2.
Improved risk management, governance and supervision
3.
Improved risk reporting & disclosure – internally, to regulator and externally
Solvency II
Pillar I
Quantitative requirements
Pillar II
Governance, Risk management
ORSA
Pillar III
Reporting & disclosure
Market Value Balance Sheet (MVBS)
Pillar 1 – Capital Requirements, Valuing Liabilities
Own Funds
Market
Other
Value
liabilities
Risk
Assets
Tier 3
Tier 2
Tier 1
Margin
Best
Estimate
Liabilities
Classification
& Eligibility
Of
Own Funds
Technical
Provisions
Solvency
Capital
Requirement
&
Minimum
Capital
Requirement
EC
SCR
MCR
SOLVENCY
ASSESSMENT
Pillar I - Market Value Balance sheet
Assets shall be valued at the amount for which they could be exchanged between knowledgeable
willing parties in an arm’s length transaction
Liabilities shall be valued at the amount for which they could be transferred or settled between
knowledgeable willing parties in an arms length transaction
Insurance undertakings must hold eligible own funds covering the Solvency Capital
Requirement
SCR shall be calculated
Either in accordance with Standard formula Or using an Internal Model (and
substantiating this with the Standard formula )
SCR shall
Cover unexpected losses only
Cover existing as well as new business expected to be written over the next 12 months
Corresponds to the Value-at-Risk of the basic own funds of an insurance undertaking
subject to a confidence level of 99.5% (1 in 200 event) over a one year period
Calibrated at BBB level
Pillar I - Solvency Capital Requirement
Insurance undertakings must hold eligible own funds covering the Solvency Capital
Requirement
SCR shall be calculated
Either in accordance with Standard formula Or using an Internal Model (and
substantiating this with the Standard formula )
SCR shall
Cover unexpected losses only
Cover existing as well as new business expected to be written over the next 12
months
Corresponds to the Value-at-Risk of the basic own funds of an insurance undertaking
subject to a confidence level of 99.5% (1 in 200 event) over a one year period
Calibrated at BBB level
However…. Because we are part of the Old Mutual Group…. BBB doesn’t cut if for us
Our Capital requirements correspond to the Value at risk of basic own funds subject to a
confidence level of 99.93% or a 7 in 10,000 year event. i.e. Calibrated at a A level
Obviously Higher rating = Higher Capital Requirements
Pillar II - Systems of Governance
All insurance undertakings have in place an effective system of governance which provides
for the sound and prudent management of the business
Transparent organisational structure
Clear Allocation and appropriate segregation of responsibilities
An effective system for ensuring the transmission of information (data & statistical
quality standards)
4 key functions of SII/SAM
Compliance function
Organisational Design
Internal Audit function
Development
Actuarial function
Risk management function
System of governance shall be proportionate to the nature, scale and complexity of the
operations of the undertaking…..
Pillar III – Public Disclosure
Publicly disclose on an annual basis a report on our solvency and financial condition
Description of the business and the performance of the undertaking
Description of the system of governance followed
Assessment of its adequacy for the risk profile of the undertaking
Description for assets, technical provisions and other liabilities – together with bases and
methods used for calculation
Description of the capital management
Amounts of the MCR, SCR
Any significant non compliance with the SCR
Underlying assumptions of the standard formula – appropriateness to the Mutual & Federal
risk profile
Report shall be subject to approval by the administrative or management body of the
insurance undertaking