The recently promulgated Insurance Laws Amendment Act, 2008 (the Amendment Act) specifically amends the Short-term and Long-term Insurance Acts, 1998 (the Insurance Act). As the amendments to the Insurance Act are numerous and the effects vast, this article deals briefly with the main amendments in respect of financial aspects relevant to long-term insurance companies.
The Amendment Act inserts the definition of 'financial reporting standards' with reference to the meaning assigned to it in terms of the Companies Act, 1973 (the Companies Act). This amendment endeavours to bring the provisions of the Insurance Act relating to financial statements in line with the provisions of the Companies Act. It is interesting to note that financial reporting standards in terms of the Companies Act refers to statements of generally accepted accounting practices, whereas the Financial Services Board has issued a directive urging insurers to comply with IFRS4.
The Registrar is entitled, at the cost of the insurer, to appoint a person to compile a report should the Registrar find that the returns submitted by the insurer require further investigation.
Auditors, audit committees and statutory actuaries
The appointment of auditors must take place in accordance with the provisions of the Companies Act applicable to widely held companies. Auditors are also required to provide the Registrar with copies of any report issued to the Independent Regulatory Board for Auditors, with regards to any irregularities the auditor might be aware of, and must inform the Registrar and the board of directors of the insurer (the Board) immediately of any matter which, in his/her opinion, constitutes a contravention of, or possibly prejudices an insurer's future compliance with, the financial soundness requirements.
In terms of the Amendment Act, the Board must appoint an audit committee. The majority of the members of an audit committee may not be employees of the insurer and at least two members must be non-executive directors of the insurer concerned.
In addition to the audit committee's functions in terms of the Insurance Act, audit committees are required to perform the additional functions set out in the Companies Act. An audit committee is allowed to appoint an advisor to assist in the performance of its functions.
The statutory actuary must report to the Board if, in his/her opinion, the insurer contravenes the financial soundness requirements. The statutory actuary must submit the report to the Registrar, if he/she is of the opinion that the matter materially prejudices the insurer's ability to comply with the financial soundness requirements, or if he/she is of the opinion that immediate remedial action must be taken. Statutory actuaries are also entitled to receive notices and communications relating to general and board meetings, and are entitled to attend and speak at such meetings on any matter that concerns the duties of the statutory actuary.
Financial soundness requirements
In terms of the Amendment Act, an insurer is deemed to have failed compliance with the financial soundness requirements if it fails to provide for the liabilities and capital adequacy requirements in terms of the calculation method prescribed in Schedule 3 of the Insurance Act.
An insurer may not declare a dividend if it fails, or is likely to fail, to comply with the financial soundness requirements (and no longer only with the requirements regarding the assets of an insurer), or if after the declaration of payment, the aggregate value of assets required to be held by the insurer would be less than the aggregate value of its liabilities, issued share capital and non-distributable reserves.
Johan Henning and Zelda Swanepoel