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Sunday, March 1, 2009
Partial provisions

There is a great deal of confusion about the status of the Insurance Laws Amendment Act, 2008.  Many people believe it has been brought into force, yet this is so for only certain provisions.  Some of the important changes, such as those relating to underwriting managers (long-term and short-term), have yet to be enacted.

The provisions relating to intermediaries and underwriting managers (‘binder agreements’) depend on what the Act calls the “requirements, limitations or prohibitions that may be prescribed by regulation.”  Until those regulations are published, the provisions have no content and cannot be enacted.  Therefore the sections relating to the remuneration of intermediaries and binder agreements (long term and short term) are not yet in force.  The latest information is that the regulations will be enacted around June 2009.  This means that draft regulations should be published soon for comment.  In the meantime, the provisions in the old Act regarding underwriting managers remain applicable.
The new provisions regarding accident and health policies (simply called ‘health policies’ under the Long-term Act) are also not in force.  These will exclude contracts that provide for the conduct of the business of a medical scheme referred to in the Medical Schemes Act and contracts entered into by medical schemes to cover their obligations to a particular member or beneficiary, but will specifically include a category of contracts identified by the Minister in regulations yet to be published.  The idea is that the demarcation between insurance and medical schemes will be drawn by the Minister, permitting insurers to provide certain accident and health insurance.  One hopes that insurers will not be worse off than the current demarcation agreement.  The old definition remains in force in the meantime.
The proposed new Short-term Act provisions relating to capital adequacy requirements, the basis upon which short-term insurers may invest in derivatives, the calculation of values of assets and the security to be provided by Lloyd’s underwriters have also yet to be enacted.
Those of you with a red pencil and a copy of the Act can make a note that the following sections are not yet in force: 1(f), 17, 18, 27(a), 39, 40, 41(a), 42, 43, 45, 46, 54 and 55 (these are the section numbers of the Amendment Act).
Although the section requiring short-term insurers to appoint a statutory actuary are in place (s 19A) the appointment must be made “under the circumstances determined by the Registrar, either generally or in a particular case”.  The Registrar has not yet determined under what circumstances short-term insurers or particular short-term insurers should appoint statutory actuaries.
Long-term and short-term insurers now require an audit committee consisting of at least three members of whom two must be independent non-executive directors.  For many insurers this means not only that they need to appoint an audit committee but they need to appoint at least two non-executive directors.  A non-executive director is defined in the Companies Act as one who is not involved in the day-to-day management of the business, has not in the past three years been a fulltime salaried employee of the company, is not a member of the immediate family of such a person, and is not related to the company or to any shareholder, supplier, customer or other director of the company in a way that would lead a reasonable and informed third party to conclude that the integrity, impartiality or objectivity of that director is compromised by that relationship.  The King Report on Corporate Governance also has requirements for an independent non-executive director of a public company.
The Registrar is allowed to exempt short-term insurers from the requirement of having two non-executive directors on the audit committee if it is “inappropriate or impractical or would serve no useful purpose”.  It is unknown whether the Registrar will readily hand out such exemptions.  Thus anyone with ambitions to become a director of a long-term or short-term insurer should step forward now bearing in mind however that the responsibilities of a director are not to be taken lightly.
Another significant provision of the amendments to both Acts is the power given to the Registrar to ensure compliance with or prevent a contravention of the laws by issuing directives generally or specifically.  Any such directive would be subject to challenge under the Promotion of Administrative Justice Act, 2000.
Auditors and actuaries and their insurance clients must bear in mind that auditors and statutory actuaries have irregularity reporting functions and the right to attend and speak at general meetings and board meetings of insurance companies on matters concerning their duties.  Notice should be given of general and directors meetings to the auditors and statutory actuaries.
Limitations on policy benefits paid by long-term insurers may by regulation be backdated to the inception of a policy.  There are no regulations out yet.
For the rest you need to study the Amendment Act to become acquainted with the many ways in which the amendments will affect you. By Patrick Bracher, Director Deneys Reitz Inc.

Copyright © Insurance Times and Investments® Vol:22.3 1st March, 2009
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