July 4, 2018

Update on policy proposals regarding Third-party Cell Captive Insurance and Similar Arrangements

On 3 July 2018, the Financial Sector Conduct Authority and the Prudential Authority published a joint communication which provides an update on the regulatory policy proposals mooted in the Third-party Cell Captive Insurance and Similar Arrangements Discussion Paper, 2013 ("Discussion Paper").

The joint communication applies to insurance business or microinsurance business conducted by cell captive insurers (as defined in the Insurance Act, 2017) and similar arrangements relating to third party risks.

The joint communication provides an update on the extent to which the regulatory policy proposals in the Discussion Paper have been accommodated in the Insurance Act, 2017 and the Prudential Standards or will shortly be accommodated in Prudential Standards.

Of import, the Prudential Authority intends to consult on a proposed Prudential Standard to be developed to deal with adequate governance and risk management, including provisions to be provided for in cell agreements. It is anticipated that the Prudential Authority will consult on such proposed Prudential Standard post 1 July 2018 and the envisaged effective date of the proposed Prudential Standard is 1 January 2019.

In addition, the joint communication indicates which of the regulatory proposals proposed in the Discussion Paper are primarily conduct of business matters, which will be dealt with by the Financial Sector Conduct Authority through the publication of a Conduct Standard in terms of the Financial Sector Regulation Act, 2017. It is envisaged that a draft Conduct Standard will be published shortly for consultation in accordance with section 98 of the Financial Sector Regulation Act, 2017.

Inter alia, the joint communication confirms in an annexure thereto:

  • who may be a cell owner, by providing that such is primarily a conduct of business matterand provides that cell owners of Third-party cell captive insurance arrangements will not be limited to binder holders, as initially proposed and that the Financial Sector Conduct Authority recognises that there may be legitimate reasons why an insurer and an intermediary may wish to enter into a cell arrangement without also concluding a binder agreement; and
  • what will qualify as an affinity scheme. The Annexure retains the initial proposal on what constitutes an "affinity scheme" but notes that such is primarily a conduct of business matter and will be addressed fully in the Conduct Standard to be developed by the FSCA.

A copy of the relevant joint communication can be accessed here.

A copy of the Discussion Paper can be accessed here.