Insurance Act, 2017 (Act No. 18 of 2017)Chapter 6 : Financial SoundnessPart 1Financially sound condition39. Failure to maintain financially sound condition |
| (1) |
| (a) | An insurer or a controlling company must have procedures in place to identify deteriorating financial soundness that may cause a failure to comply with section 36. |
| (b) | An insurer or a controlling company may not declare or pay a dividend to its shareholders or make a surplus or profit distribution to its members— |
| (i) | if it fails or is likely to fail to comply with section 36; or |
| (ii) | if the declaration, payment or distribution would result in it failing or being likely to fail to comply with section 36. |
| (2) |
| (a) | An insurer or a controlling company that fails to— |
| (i) | hold assets or invest those assets in accordance with any prescribed requirements, limitations or conditions; or |
| (ii) | provide for its technical provisions or other liabilities in accordance with prescribed requirements, must, without delay, notify the Prudential Authority of the failure, the reasons for the failure and the measures to be implemented to comply with the requirements. |
| (b) | The Prudential Authority may take any measures the Prudential Authority considers necessary to address the failure referred to in paragraph (a). |
| (3) | An insurer must, without delay, notify the Prudential Authority of its failure to meet or of any risk that it may in the following three months fail to meet its minimum capital requirement or solvency capital requirement. |
| (4) | A controlling company must, without delay, notify the Prudential Authority of its failure to meet or of any risk that it may in the following three months fail to meet its group solvency capital requirement. |
| (5) |
| (a) | If an insurer gives notice to the Prudential Authority under subsection (3) that it is failing or may in the following three months fail to meet its minimum capital requirement, or if the Prudential Authority reasonably believes that an insurer is failing or may in the following three months fail to meet its minimum capital requirement, the Prudential Authority may— |
| (i) | direct the insurer to, within one month, submit a short-term recapitalisation scheme to the Prudential Authority for approval that sets out the measures that the insurer will implement within a period not exceeding three months after the submission of the short-term recapitalisation scheme to— |
| (aa) | restore its eligible own funds to at least the level of its minimum capital requirement; or |
| (bb) | reduce its risk profile to ensure compliance with its minimum capital requirement; or |
| (ii) | take any action referred to in Chapter 4 or Chapter 9. |
| (b) | The Prudential Authority may, if appropriate, extend the three-month period referred to in paragraph (a)(i) by three months and, in exceptional circumstances, extend that period by an appropriate period of time, taking into account all relevant factors. |
| (6) |
| (a) | If an insurer gives notice to the Prudential Authority under subsection (3) that it is failing or may in the following three months fail to meet its solvency capital requirement, or if the Prudential Authority reasonably believes that an insurer is failing or may in the following three months fail to meet its solvency capital requirement, the Prudential Authority may direct the insurer to, within the period agreed with the Prudential Authority, which period may not exceed two months, submit a recapitalisation strategy to the Prudential Authority for approval that sets out the measures that the insurer will implement within a period agreed with the Prudential Authority, which period may not exceed six months, to— |
| (i) | re-establish the level of eligible own funds necessary for complying with the solvency capital requirement; or |
| (ii) | reduce its risk profile to ensure compliance with the solvency capital requirement. |
| (b) | The Prudential Authority may, if appropriate, extend the six-month period referred to in paragraph (a) by three months and, in exceptional circumstances, extend that period by an appropriate period of time, taking into account all relevant factors. |
| (7) |
| (a) | If a controlling company gives notice to the Prudential Authority under subsection (4) that it is failing or may in the following three months fail to meet its group solvency capital requirement, or if the Prudential Authority reasonably believes that a controlling company is failing or may in the following three months fail to meet its group solvency capital requirement, the Prudential Authority may direct the controlling company to, within the period agreed with the Prudential Authority, which period may not exceed two months, submit a recapitalisation strategy to the Prudential Authority for approval that sets out the measures that the controlling company will implement within a period agreed with the Prudential Authority, which period may not exceed six months, to— |
| (i) | re-establish the level of eligible own funds necessary for complying with its group solvency capital requirement; or |
| (ii) | reduce its risk profile to ensure compliance with its group solvency capital requirement. |
| (b) | The Prudential Authority may, if appropriate, extend the six-month period referred to in paragraph (a) by three months and, in exceptional circumstances, extend that period by an appropriate period of time, taking into account all relevant factors. |
| (8) | An insurer or a controlling company whose short-term recapitalisation scheme or recapitalisation strategy was approved must submit a monthly progress report to the Prudential Authority that sets out the measures taken and the progress made with implementing the scheme or strategy. |
| (9) | The Prudential Authority may restrict or prohibit certain activities or transactions of the insurer, controlling company or insurance group until the capital requirements are complied with and the financial soundness of the insurer or insurance group has been restored. |
| (10) | A short-term recapitalisation scheme or recapitalisation strategy must include the matters as prescribed. |
| (11) | This section does not limit any other action that the Prudential Authority may take in terms of this Act. |