Chapter 1: SA GI Market Flashcards
Statutory classes that an insurer can write under a short-term insurance license?
[17]
- Property
- Transport
- Motor
- Accident and Health
- Guarantee
- Liability
- Engineering
- Miscellaneous
- Agriculture
- Marine
- Aviation
- Rail
- Trade Credit
- Legal Expense
- Consumer Credit
- Travel
- Reinsurance
Major providers of general insurance and reinsurance in SA?
[5]
- Direct insurers
- Reinsurers
- Lloyd’s of London
- SASRIA (South African Special Risks Insurance Association)
- RAF (Road Accident Fund)
Requirements that an applicant will have to meet when applying for a short-term insurance license from the PA?
[6]
- Minimum Capital Requirement
- Detailed reinsurance programme
- Organogram of company
- Proposed management
- Detailed business plan
- Auditors
What is a cell captive?
A cell captive is a rent-a-cell insurance arrangement. A company that does not have an insurance license can rent the license from a cell captive insurer.
The types of cells in a cell captive?
[2]
First party cell: Insurance business introduced relates to the cell shareholder’s own risks and that of their subsidiaries
Third part cell: Insurance business introduced relates to third parties
Key characteristics of cell captive structures?
[8]
- Investment Earnings: Shareholders gain from assets generated by insurance business and share issuance.
- Individual Accounting: Activities and claims within each cell are managed separately, enhancing clarity and control.
- Reinsurance Adaptability: Cells often use tailored reinsurance, reflecting the owner’s risk preference and the nature of underwritten risks.
- Insurance Contract Compliance: Issued policies conform to insurance contract standards, ensuring significant risk transfer.
- Non-Incorporated Status: Cells, lacking legal status, operate under the insurer’s legal umbrella, with the insurer handling administration and attributing financial results to the cell.
- Asset Ownership: Insurer owns cell assets, directing investments but allocating returns to the cell.
- Mutual Credit Risk: Both insurer and shareholder face credit risks based on the cell’s financial performance.
- Dividend Policy: Dividends to shareholders are at insurer’s discretion; final dividends are issued upon cell termination, based on net assets.
What perils are covered by SASRIA?
[6]
SASRIA is the only insurer in SA that can insure the following perils:
- Politically motivated acts
- Riots
- Strikes
- Terrorism
- Civil commotion
- Public disorder
This makes SASRIA a legislated monopoly
Which products does SASRIA cover? [6]
Are there any conditions required?
- Business interruption
- Construction risks
- Goods in transit
- Material damage
- Money
- Motor
A pre-condition for SASRIA cover is that the underlying fire policy must be in place for the non-motor risks mentioned above. SAIA exceptions must also be included, with war and associated acts also excluded under SASRIA cover.
How is the RAF funded?
What is considered for claim amounts? [5]
The RAF is funded by the fuel levy.
RAF will consider the following in claims:
- Medical expenses (From accident till settlement + future costs)
- Loss of income and reduced earning capacity
- General damages
- Funeral expenses
- Loss of support suffered by dependents in the case of death of breadwinner
Note; Loss to property is not covered by the RAF
What is a UMA and how are they compensated?
An underwriting management agent is an authorised agent of an insurer or insurers. They are usually specialists in a field of business and may be partly owned by the insurer or other parties.
The UMA will not be compensated by commission but rather binder fees. In this case they may take on some of the underwriting or administration duties from the insurer for a specific book of business. The insurer runs the risk of the UMA acting outside its mandate.
Binder functions that a UMA may perform?
[6]
- Enter into, vary or renew a policy
- Determine the wording of a policy
- Determine the premiums under a policy
- Determine the value of policy benefits
- Settle claims under a policy
- Collect premiums on behalf of underwriter if compliant with premium collection requirements
What are the binder regulations?
[5]
- A binder holder may not further delegate binder functions
- Fees have to be commensurate with the actual costs incurred by the binder holder in fulfilling its function
- Such fees cannot be linked to profits
- Have to obtain the client’s specific written consent to move his/ her policy from one insurer to another
- Insurance broker cannot be associated with a UMA or mandated intermediary
List the economic external factors to consider?
[4]
- Inflation
- Currency exchange movements
- Underwriting cycle
- Investment conditions
What are the insurable risk criteria?
[9]
For a risk to be insurable, the following should hold true:
- Policyholder should have an interest in the risk (”skin in the game”)
- Risk should be quantifiable
- Amount payable must bear some relationship to the financial loss incurred
- Risk events should be independent
- Risk events should have a low probability of occurring
- Risk events should be pooled with similar risks
- Risk events should have an ultimate liability
- Should avoid moral hazard
- There should be sufficient data to enable insurer to estimate size of risk and likelihood of occurrence
What are the key priority areas for SAIA?
[5]
The SAIA’s key priority areas include:
- transformation and social risks
- governance risks
- insurance risks
- operations
- stakeholder relations
