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Prudential Authority directs CICL to ensure the orderly resolution of the Prime Living Cover Grow Policies and Living Legacy Policies

  • Market Insight 4 August 2020 4 August 2020
  • Africa

On 27 July 2020, the Prudential Authority released a communication titled "Constantia Insurance Company Limited (CICL): Treatment of Prime Living Cover Grow Policies and Living Legacy Policies as part of the conversion of the registration of CICL under the Short-term Insurance Act, 1998 (Act No. 53 of 1998) (STIA) to a licence under the Insurance Act, 2017 (Act No.18 of 2017) (Insurance Act)" ("Communication")

This Communication follows the recent judgement of the High Court, Gauteng Local Division, Johannesburg in the matter of Nell and Others v Constantia Insurance Company Limited and Others. In this matter the applicants took out Living Legacy and Prime Living Cover Grow policies covering death and disability through illness and natural causes with Constantia Insurance Company Limited ("CICL"). At the time of purchase, these policies were underwritten by CICL under its short-term insurance business licence which it held in terms of the Short-term Insurance Act, 1998. However, under the new policy classification introduced by the Insurance Act, 2017 ("Insurance Act"), these policies constitute life insurance policies which CICL would not be entitled to continue to underwrite once its registration as a short-term insurer was converted to a licence to conduct non-life insurance business as a non-life insurer. The court held (amongst other things) that CICL's purported cancellations of the Prime Living Cover Grow Policies and Living Legacy Policies were of no force and effect, and that CICL would also need to engage with the Prudential Authority as it ought to have done, instead of cancelling the policies. Please click here for a copy of our recent newsflash on this judgement.

The Communication follows on CICL's subsequent engagement with the Prudential Authority and its purpose is to publish the decision taken by the Prudential Authority pursuant to the provisions of sub-item 6(5) of Schedule 3 to the Insurance Act to direct CICL to deal with the Prime Living Cover Grow Policies and Living Legacy Policies as part of its licence conversion.

The Communication provides that, with effect from 1 July 2020, the registration of CICL has been converted, pursuant to the provisions of Schedule 3 to the Insurance Act, to a non-life insurance licence.

Item 6(5)(b)(ii) of Schedule 3 to the Insurance Act provides that, if the Prudential Authority does not convert the registration of a previously registered insurer to a licence to conduct insurance business in respect of a specific class or sub-class set out in Schedule 2 of the Insurance Act that is similar to the business that the previously registered insurer was registered for, the Prudential Authority must direct the insurer to make arrangements to the satisfaction of the Prudential Authority to (amongst other things) ensure the orderly resolution of that insurance business of the insurer.

In terms of item 6(5)(b)(ii) of Schedule 3 to the Insurance Act the Prudential Authority has directed CICL to ensure the orderly resolution of the Prime Living Cover Grow Policies and Living Legacy Policies within a period of six months from CICL's conversion date (i.e. 30 June 2020) in the following manner:

  1. Each policyholder should be offered a replacement policy, replacing the Prime Living Cover Grow Policies and Living Legacy Policies with a personal accidental death policy; and
  2. Each policyholder should be offered discounted individual funeral products waiving waiting periods and pre-existing condition exclusions. Cover should be extended up to R30 000 for individuals and R50 000 for families.

CICL was directed to communicate the decision taken by the Prudential Authority to all affected policyholders.

A copy of the Communication can be accessed here.

End

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