Page 13 - MC14326 all pages
P. 13
The South African Insurance Industry Survey 2016 | 9
The entire balance sheet is now balance sheet, which is potentially a
presented on an economic basis, which more realistic view of the company’s
attempts to present the true position of position and performance for the period,
the company. in comparison to the current (prudent)
IFRS result.
SAM still maintains risk margins but
these are embedded in the economic The risk of compliance
balance sheet view and represent “… Despite my general optimism, I am not
a part of technical provisions in order convinced that the various stakeholders
to ensure that the value of technical discussed above are sufficiently educated
provisions is equivalent to the amount with regards to SAM to exploit these
that insurers and reinsurers would be benefits. Furthermore, treating SAM as
expected to require in order to take over a compliance exercise increases the risk
and meet the insurance and reinsurance that it will add no value. Hasty reporting
obligations.”13 These amounts are an to the board will not be useful and is
economic margin not a prudence margin. likely to discourage further interest.
Tick-box reporting to the shareholder
This is partially a result of the current will not promote meaningful shareholder
IFRS 4: Insurance Contract standard, engagement. Treating SAM as a low
which is largely a disclosure standard priority project for employees will
and provides very limited guidance encourage them to minimalise the effort
on the measurement of insurance they take to embed it properly in the
technical items. The standard even allows organisation. Worst of all, treating risk
“excessive prudence” to be included management as a checklist is a sure
in the IFRS accounts.14 This excessive way to waste money and expose the
prudence is included in many cases as organisation to threat.
an uncertainty margin. Where the current
industry interpretation of IFRS has taken Conclusion
the view that it is better to include this As I said at the outset – I am a big fan of
uncertainty in the technical provisions, SAM. I think the benefits for the industry
the SAM view includes an allowance far outweigh the cost. Personally, I am
for this prudence in capital. What is happy to take a less than 0.1 percent
interesting is that once this uncertainty is increase in my premium to claim
allowed for, the free surplus is 25 percent associated benefits such as increased
and 41 percent lower for life and non-life confidence in the industry, enhanced
on the SAM basis than the current basis. reporting as well as vastly improved
Admittedly, SAM’s prudence is based on governance and risk management.
a one in two-hundred year event and is For all insurers that continue to treat SAM
therefore at a much higher confidence as a compliance exercise this will remain
level. Either way, the result is a SAM the case.
13 TP 28.2 QIS 3 Technical Specifications
14 IFRS 4: Insurance Contracts, paragraph 26.
