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Derek Vice The South African Insurance Industry Survey 2016 | 5
Senior Manager, Sold on SAM:
Financial Services
Tel: +27 82 711 2519 A message for the uninitiated
Email: derek.vice@kpmg.co.za
One of the pleasures of being an auditor and consultant is the exposure to a cross section
of the insurance industry – from large personal lines and commercial specialists to small
and niche players, we get to meet them all. One thing that has stood out from these
interactions is the multitude of opinions regarding the necessity for Solvency Assessment
Management (SAM).
Many industry players still see it should be inspiring confidence in SAM is immediately increasing the
compliance with SAM as a tick-box the insurance sector and empowering certainty of those future cash flows,
exercise, and some as a waste of progressive change. In my view, SAM translating to more value. Quite simply,
resources. is beneficial to the policyholder, the SAM is making the South African
shareholder, management, the board insurance industry more valuable to
I will be honest - I am a big fan! and the employee – it is obviously the investor.
Having grown up in the changing advantageous to us as the consultants,
world of regulatory reporting, having considering the costs associated with You might fear that all this emphasis on
experienced the transition from SAM implementation.2 risk will result in a reduction of returns.
the arbitrary 10 percent capital In the classic adage, “higher risk is
requirement and seven percent short- For the investor: risky investments - associated with a greater probability of
term incurred but not reported (IBNR) made less risky a higher return.”3
provision, to risk-based capital and best On 31 December 2015 the market
estimates, I think we are operating in capitalisation of the JSE listed This is the function of the Own Risk
a better regulatory environment than insurance sector securities was and Solvency Assessment (ORSA),
ever before. Although some people R517.3 billion. The value of these which should be examining the
have described SAM as “poppycock.”1 investments is a function of the future risk and return payoff in light of a
I would like to share my reasons for cash flows - normally in the form of predefined risk appetite. An insurer
believing that, although SAM might not dividends - and the certainty of those intentionally underwrites the right
be Super, Amazing and Magnificent, future cash flows. By managing risk, risk and manages, mitigates or avoids
1 “Creating a blind bureaucracy to lead insurers over the edge” – www.timeslive.co.za
2 By the way, according to the Economic Impact Study (EIS) the industry estimated SAM implementation would cost around R2.5 billion.
3 www.economictimes.com
