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Sunday, January 1, 1989
Freedom with laws

Since his appointment as Registrar of Financial Institutions in June 1987, Theo van Wyk has quickly established himself as an independent thinker and indeed, a firm supporter of the principles of free enterprise.
Responsible for managing 12 Acts of Parliament, it has been the 1943 Insurance Act, and the short term insurers in particular, that have taken up much of his time.
In considering the short term insurers’ position he identified four basic aims:
• to improve the level of self-supervision, including auditing of insurance companies;
• to oversee the implementation of certain recommendations of the Melamet Commission, in particular, the reserving and solvency requirements (including the catastrophe reserves);
• to have structural biases removed which have the effect of limiting the capital base of companies and thereby raising the insurance capacity of the market; and,
• to enable the short term insurance industry to compete with foreign insurers on an equitable basis.
“Short term insurers are taxed on an all-in basis,” explains Mr van Wyk, “which usually includes the realised appreciation of assets representing shareholders’ funds. This means that, in an inflationary environment, insurers have to run so much faster just to stand still. Continuing inflation means higher premiums, and these lead to higher reserve requirements.
“This is unfortunate because it discourages investment in the industry. If this fiscal bias were to be removed it should enhance investment in the industry and thereby increase the insurance capacity.”
But it is no good creating the capacity in the local domestic market if it cannot match foreign competition because of “uneven playing fields.”
“Local insurers have the natural advantage of being based here locally, knowing the people, the business and SO forth. However, structural imperfections which operate against them are being looked at.”
Mr van Wyk was born on January 5 1948 in Cape Town. He studied at the University of Stellenbosch and obtained the B Comm (1967) and LLB (1969) degrees.
From September 1971 to June 1972 he studied fiscal law at the Free University of Brussels. Thereafter, by part-time study, he obtained the LLM degree (1975) from the University of South Africa and the Higher Diploma in Tax Law (1977) from the University of the Witwatersrand.
After completing his studies at the University of Stellenbosch in 1969, he joined the Department of Inland Revenue.
He was admitted as an advocate during 1970. He joined the University of South Africa in 1974 as a senior lecturer in the Department of Mercantile Law where he held a chair from 1978 to 1985 and, from April 1985 to May 1987, he was professor of Mercantile Law at the University of Stellenbosch. During that period he also served as a member of the Margo Commission of Inquiry into the Tax Structure of South Africa. He is a member of the Competition Board, the Public Accountants’ and Auditors’ Board and the Technical Committee on Banking and Building Society Legislation.
Mr van Wyk is a tall, striking figure with a courteous and disarming nature. Clearly a lateral thinker who is at home with deductive reasoning and detailed personal research, he is hardly the stereotyped bureaucrat.
He says that free enterprise is government policy. He says that free enterprise is government policy. “I believe it is the only economic system that will create the wherewithal with which we can meet the aspirations of the various sectors of our community.
“It is imperative that we rely to the maximum on the optimal allocation of our scarce resources. I believe it is the only economic system that will create the wherewithal with which we can meet the aspirations of the various sectors of our community.
“It is imperative that we rely to the maximum on the optimal allocation of our scarce resources. We have been cut off from new foreign capital to a large extent. That means we have to utilise the capital we do have in South Africa more effectively to generate economic growth.”
He points out that one must look at not only financial and physical resources, but also at human resources. “So we have to look at where we can do away with structures that inhibit or impede the optimum utilisation of resources. “Regulation is an interacting phenomenon. If you take away one set of rules without looking at other sets of rules you’ll create distortions.
“Our program is to have new comprehensive insurance legislation coming before Parliament in 1990. Next year we hope to see amending legislation to implement some of the Melamet recommendations which were considered matters of urgency as well as other structural changes we saw fit to act upon.”
It is apparent that Mr van Wyk has influenced the government’s approach to the new legislation. To him, whenever you consider an expansion of regulation you should actually ask yourself, “should one not go back to basics and do away with regulation altogether?” Or, at least, one should ask to what extent can one actually deregulate while redrafting existing legislation?
One must also bear in mind that the consumer must ultimately bear the cost of administering the law.
It would be self-defeating if the malpractices would cost the consumer less than the cost of regulating to prevent those malpractices. On the other hand, says Mr van Wyk, “History has taught us that there is a need for consumer protection when it comes to financial products. The philosophy I would like to see is to liberate financial institutions as far as possible so they can optimally utilise their resources, but at the same time to ensure adequate protection for the consumer.
“l would also want a system whereby we could have a more specific reaction to abuses rather than a general inhibition of the market as a whole.”
On one aspect of overseas competition, Mr van Wyk mentions Lloyd’s of London. “We see Lloyd’s as a very valuable participant in the SA market; but we support the view that foreign competition must be equitable. Lloyd’s, being a totally different type of institution than our insurance companies, has to be treated differently. What we are looking for is that, on balance, they will be on a level playing field with the local market. We shall not act without sound evidence and a thorough investigation.”
As it is there are no proposals in the pipeline as regards amending legislation.
“Melamet recommended, in his interim report, that we look at captives, which we immediately started doing.” says Mr van Wyk. “We got a lot of evidence from overseas, from other foreign jurisdictions, and United Nations publications, all dealing with captives.
“With captives one is not sitting with the normal arm’s length transactions; you don’t have the usual checks and balances that we have with other transactions which means that abuses are easily perpetrated. We should at least have adequate monitoring to pick up where abuses are taking place.
“We are doing things to try and get a better flow of information, for example, with the use of computer systems. ‘But it is not clear what the answer is. There’s no doubt that captives would give you a facility, should we have sanctions. They would provide access to the international insurance market on a wholesale basis.
‘‘Should you put it under a cloak of secrecy there could he abuses if you don’t have the necessary checks and balances.’’ And such secrecy could afford operators a chance for ‘‘transfer pricing’’.
‘‘Hopefully, there will be an announcement fairly soon as regards an investigation into captives as suggested by Melamet. Certainly there is a need or a thorough investigation.’’
Mr van Wyk says that it is his fundamental aim to ensure ‘‘equitable competition’’, not to protect the local market but to put it on a hair basis. ‘‘At present I do believe there is a bias in favour of overseas operators: lower taxes abroad: strong foreign currencies; higher real rates of interest overseas; higher inflation here; and, the prescribed assets requirements.
‘‘This office won’t have less work to do, even if regulations are streamlined. What I would like to see is an improvement in the quality of work.”
Mr van Wyk talks of a fundamental change in the financial sector, of much more reliance on computers. There is much innovation taking place. What you need is to be adequately staffed to cope with these developments without iii any way inhibiting this evolutionary process.
Urgent attention is being given to the position of my office and its staff. Hopefully, Mr van Wyk will remain in office long enough to establish a new order of bureaucratic regulation that recognises freedom of the individual, the importance of the entrepreneur, and yet provides the consumer with a simple, flexible framework of protection.

Copyright © Insurance Times and Investments® Vol:2.1 1st January, 1989
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