Foreign entities insuring “first party risks” in South Africa receive direction on the application of sections 5(1) and 5(2) of the Insurance Act

On 30 August 2021, the Prudential Authority (“PA”) and Financial Sector Conduct Authority (“FSCA”) published Joint Guidance Notice 1 of 2021 (“the Guidance Note”) which provides guidance on the application of sections 5(1) and 5(2) of the Insurance Act, 18 of 2017 ("Insurance Act") in respect of foreign entities insuring “first party risks” and conducting insurance business in South Africa, which would require them to obtain an appropriate licence in South Africa.

A copy of the Guidance Note can be accessed here.

The Guidance Note must be read with Joint Guidance Notice 1 of 2019 (“Guidance Note 2019”), published by the PA and the FSCA jointly on 17 April 2019, which provides guidance on the application of sections 5(1) and 5(2) of the Insurance Act, in respect of foreign (re)insurers conducting insurance business in South Africa.  For a copy of our previous article on the Guidance Note 2019, please click here.

The Guidance Note provides the following guidance on the application of section 5(2) of the Insurance Act in respect of a person concluding insurance business in relation to “first party risks” in South Africa and the licensing approach to be adopted by the PA and the FSCA:

1. Captive insurers that are domiciled in and operate from a foreign jurisdiction are typically wholly owned subsidiaries of a group of companies (parent company) and insure exclusively the “first party risks” of the group of companies of which the insurer is a part of;
2. Foreign entities that meet the definition of “captive insurer” read with the definition of “first party risks” as defined in section 1 of the Insurance Act are regarded as conducting “insurance business” in South Africa in terms of sections 5(1) and 5(2) of the Insurance Act if such captive insurers either:
   1. solicit insurance business directly from South-African based subsidiaries of the parent company; or
   2. through an intermediary, act by appointing, instructing, or influencing the intermediary to place the insurance business of a South African based subsidiary with the foreign domiciled captive insurer;
3. The PA will consider applications for the licencing of any person intending to insure “first party risks” in terms of section 23 of the Insurance Act read with item 13(b) of schedule 3 to the Insurance Act; and
4. A foreign domiciled captive insurer conducting insurance business in relation to “first party risks” in South Africa may submit an application in terms of section 66(1) of the Insurance Act for an exemption from compliance with the provisions of section 23 read with item 13(b) of schedule 3 of the Insurance Act, and that such application should accompany the aforesaid licensing application.

The Guidance Note iterates the steps which the PA will take where it regards foreign insurers to be conducting insurance business in South Africa without being licensed to do so, as set out in paragraph 5 of the Guidance Note 2019.

Should you require any assistance in understanding and applying the Guidance Note, please reach out to Ernie van der Vyver and Nicole Britton.