Insurers are ready for SAM rules

In terms of SAM, which is based on Europe's Solvency 2 regime, long-term and short-term insurers are expected to align their capital requirements with the underlying risk so that they can pay out multiple claims from policyholders.

Some insurers have noted that implementation will come at a cost as systems will have to be built to comply with the rules. This has raised worries the companies will pass on the cost of building these systems to the consumer.

Authorities in Europe have deferred the deadline for the regulatory framework and no definite implementation date has been set.

However, most of the South African insurers say they are ready to implement the regulations

"If SAM was not delayed we would comply with effect from 2015. A significant amount of work has already been completed and we have a comprehensive project to ensure that we will be able to comply with the requirements of SAM," Liberty Holdings financial director Casper Troskie said.

But he cautioned that if the regulatory framework was delayed in Europe but not in SA, care should be taken to ensure local insurers were not put at a disadvantage to their international competitors.

London- and Johannesburg- listed Old Mutual said it was well placed to comply and was sufficiently well capitalised.

"We would like it to be implemented as soon as possible as we believe it is correct to allocate capital according to economic risks undertaken by the businesses," Old Mutual spokesman William Baldwin-Charles said.

"We do not expect that the delay will cause any greater costs for policyholders or shareholders.

"In the interim hiatus on Solvency 2, we plan to press ahead with enhanced economic capital and risk disclosures, which will be of benefit to the investor community."

Santam, the largest short-term insurer in SA, said the SAM regulations did not entail onerous capital requirements for short-term insurers.

"Santam is working towards implementing the requirements of SAM within the existing time lines - and would prefer that SAM is implemented as planned," Santam chief financial officer Hennie Nel said.

"The sooner the industry moves towards a risk-based capital framework, the better it will be for the security of short-term insurance policyholders."

MMI Holdings chief executive Nicolaas Kruger said the firm's SAM plan was on track but cautioned that its early adoption in SA could place local insurers at a competitive disadvantage when competing for international business.

"A delay in implementation would afford companies more time to make potentially complex and costly decisions regarding systems," Kruger added.

Source: Business Day via I-Net Bridge