Assessing the impact of Solvency Assessment and Management on risk management in South African insurance companies

Abstract

The study investigates how regulatory changes influence the role of risk management in insurance companies, more specifically the impact which Pillar II of Solvency Assessment and Management (SAM) may have on risk management in a South African insurance company. Furthermore, the study evaluates the current self-assessed readiness of insurers for future SAM risk management requirements. A quantitative secondary data analysis approach was applied to the SAM Pillar II Readiness Survey, which the Financial Services Board conducted in 2012 as part of the process to prepare insurance companies for SAM. The results of the survey, which was mandatory for all registered South African insurance companies (life and non-life insurers), indicated that four areas are associated with insurers’ self-assessments in terms of readiness for the SAM requirements: having a risk management system in place, documenting the risk management strategy, having an explicit assetliability management policy and having a risk transfer policy. Furthermore, the results indicate a gap between effective risk management practices as described in the literature and those which insurers associated with being ready for the SAM requirements. Raising insurer awareness of these gaps will help strengthen the local risk management system.

Keywords: enterprise-wide risk management; insurance regulation; risk-based supervision framework; risk management; Solvency Assessment and Management