Insurance Act, 2017 (Act No. 18 of 2017)Chapter 6 : Financial SoundnessPart 1Financially sound condition36. Maintenance of financially sound condition |
| (1) | An insurer must at all times maintain its business in a financially sound condition, by holding eligible own funds that are at least equal to the minimum capital requirement or solvency capital requirement, as prescribed, whichever is the greater. |
| (2) | A controlling company in respect of an insurance group must at all times maintain the insurance group in a financially sound condition, by holding group eligible own funds that are at least equal to the group solvency capital requirement as prescribed. |
| (3) | If the Prudential Authority reasonably believes that any value calculated by an insurer or a controlling company in respect of its financial soundness does not reflect a reasonable value for the purposes of this Act, the Prudential Authority may direct the insurer or controlling company— |
| (a) | to appoint, at the cost of the insurer or controlling company, a suitably qualified person to be approved by the Prudential Authority to determine a reasonable value, which value so determined will be deemed to be the value; or |
| (b) | to calculate the value in a manner determined by the Prudential Authority, which value so calculated will be deemed to be the value. |
| (4) | If the Prudential Authority reasonably believes that any principle, method, assumption, technique, adjustment, calibration, parameter, calculation or model of an insurer or controlling company used or applied in respect of its financial soundness requires further investigation, the Prudential Authority may direct the insurer or controlling company to secure an independent review thereof, at the cost of the insurer or controlling company, by a person to be approved by the Prudential Authority. |
| (5) | The Prudential Authority may direct an insurer, a controlling company, or the board of directors or other key persons of the insurer or controlling company, to change, amend, strengthen or effect improvements to any principle, method, assumption, technique, adjustment, calibration, parameter, calculation or model of an insurer or controlling company used or applied in respect of its financial soundness. |
| (6) | The Prudential Authority may prescribe— |
| (a) | in respect of the calculation of financial soundness, the principles, methods and assumptions that must be used in the calculation, and any approvals required in respect of such principles, methods and assumptions; |
| (b) | in respect of assets— |
| (i) | the principles, methods and assumptions that must be used in the valuation of assets; |
| (ii) | limitations relating to the— |
| (aa) | type and kind of assets that may be taken into account for calculating financial soundness; |
| (bb) | maximum and minimum percentages of certain assets that may be taken into account for calculating financial soundness; |
| (cc) | location of assets that may be taken into account for calculating financial soundness; and |
| (dd) | use of assets; and |
| (iii) | custody arrangements in respect of assets; |
| (c) | in respect of technical provisions, the— |
| (i) | methods and assumptions that must be used in the valuation and calculation of technical provisions; |
| (ii) | simplified methods and techniques to calculate technical provisions, to ensure that actuarial and statistical methods are proportionate to the nature, scale and complexity of the risks supported; |
| (d) | in respect of liabilities other than technical provisions, the methods and assumptions that must be used in the valuation of those liabilities; |
| (e) | in respect of eligible own funds— |
| (i) | the tiering and classification of basic own funds and ancillary own funds; |
| (ii) | the quantitative limits in respect of each tier referred to in subparagraph (i); |
| (iii) | adjustments to own fund items; |
| (iv) | interests and transactions that must be disregarded; and |
| (v) | the criteria that ancillary own funds must comply with; |
| (f) | in respect of the minimum capital requirement— |
| (i) | the calculation and calibration of the minimum capital requirement; |
| (ii) | the frequency at and the circumstances under which the minimum capital requirement must be calculated or estimated; |
| (g) | in respect of the solvency capital requirement or group solvency requirement— |
| (i) | the frequency at and the circumstances under which the solvency capital requirement or the group solvency requirement must be calculated or estimated; |
| (ii) | the standard formula for calculating the solvency capital requirement or the group solvency capital requirement, and— |
| (aa) | the methods, assumptions, and standard parameters to be used in respect of the standard formula or any module or sub-module thereof; |
| (bb) | the— |
| (A) | subset of standard parameters that, subject to approval by the Prudential Authority, may be replaced by insurer-specific or insurance group-specific parameters; |
| (B) | standardised methods to be used by an insurer or a controlling company to calculate the insurer-specific or insurance group specific parameters; and |
| (C) | criteria in respect of governance and the completeness, accuracy, and appropriateness of the data used for insurer specific or insurance group-specific parameters; |
| (cc) | the methods and adjustments relating to ring-fenced funds that must be used to reflect the reduced scope for risk diversification in respect of those funds; and |
| (dd) | any simplified calculations for specific sub-modules and risk modules, and the criteria that must be met for an insurer or a controlling company to be able to use each of those simplifications; |
| (iii) | requirements for the use of a full or partial internal model to calculate the solvency capital requirement, group solvency capital requirement or a part thereof, including the— |
| (aa) | governance, use test, statistical quality, calibration, model validation, modeling and documentation standards that apply to those full or partial internal models; |
| (bb) | process for applying for the Prudential Authority’s approval of a full or a partial internal model; and |
| (cc) | responsibilities of the insurer, controlling company, board of directors and senior managers in respect of a full or a partial internal model; |
| (h) | in respect of reinsurance business or reinsurance arrangements— |
| (i) | requirements for the recognition and treatment of reinsurance for financial soundness; |
| (ii) | limitations on the extent of the reinsurance business that an insurer or a reinsurer may place with another insurer or reinsurer individually or in aggregate; |
| (iii) | the principles and requirements with which any reinsurance arrangement must comply; |
| (iv) | the matters that must be included or addressed, or may not be included, in a reinsurance arrangement; and |
| (i) | requirements in respect of— |
| (i) | investments; |
| (ii) | the use of financial instruments, including derivatives; |
| (iii) | off-balance sheet transactions; |
| (iv) | intra-group transactions; |
| (v) | transactions that may increase, encumber or reduce assets or liabilities; or |
| (vi) | financial or other exposures to entities that are part of an insurance group. |