December 10, 2019

Cell owners in cell captive insurers in South Africa will come under pressure in 2020

Increased regulatory supervision will lead to a reduction in cell owners.

The South African Insurance Act, 2017 introduced on 1 July 2018 the definition of a cell captive insurer and now provides that only cell captive insurers licensed under the act may conduct insurance business through cell structures.

The full detail regarding cell captive insurance business will be dealt with in subordinate legislation issued pursuant to the provisions of the act. While we are still waiting the publication of the proposed subordinate legislation, which will deal with adequate governance and risk management in cell agreements, on 20 July 2018 draft conduct of business subordinate legislation was published for consultation. The draft legislation proposes (amongst others) limitations regarding who can be cell owners, particularly where a cell owner is an intermediary or an associate of an intermediary.

We anticipate that based on the current proposals in the draft subordinate legislation there will be a reduction in existing cell owners, partly as a result of non-compliance with the limitations of cell ownership and partly due to increased regulatory supervisory requirements. 

The impact is not only limited to cell owners. Cell captive insurers are also impacted by the advent of the Insurance Act, as they are accountable for the financial soundness and regulatory compliance of each cell structure that they put in place. The financial soundness obligations are similar to those stated under Solvency II and will undoubtedly place new pressures on existing cell captive insurers. 

Read the rest of our insurance predictions here.