1. SOUTH AFRICAN INSURANCE ASSOCIATION.
SOUTH AFRICAN INSURANCE ASSOCIATION

2. FINANCIAL SECTOR CHARTER
presented by
Leila Moonda

3. Introducing the Financial Sector Charter

4. Key Outcomes Sectoral Transformation strategy
Interventions on targeted areas of the economy
BEE financing strategy
A basis for engagement with stakeholders

5. Principles A commitment that is voluntarily developed by the Sector
A transformation framework that establishes mechanisms for BBBEE
A balanced scorecard approach to measure achievements in broad transformation and BEE objectives
Growth & development of the sector integral to BEE
Provisions subject to sound business principles

6. Context Very low levels of black participation
Black senior management accounts for less than 10%
Diminished black ownership in the Sector
Low levels of investments in areas of national priority
Infrastructure, Low income Housing, Black SMEs, BEE Transactions
High number of un-banked / uninsured persons
Dismal provisions of effective access to financial services and products (LSM 1-5)

7. Vision
“…promoting a transformed, vibrant and globally competitive sector that reflects the demographics of SA, and contributes to the establishment of an equitable society by effectively providing accessible financial services to black people and by directing investment into targeted areas in the economy”

8. Signatories Association of Collective Investments (ACI)
Banking Association of South Africa
Bond Exchange of South Africa
Foreign Bankers Association
Institute of Retirement Funds (IRF)
Investment Managers Association of South Africa (IMASA)
JSE Securities Exchange
Life Offices Association (LOA)
South African Insurance Association (SAIA)
South African Reinsurance Offices Association (SAROA)
Association of Black Securities and Investment Professionals (mandated by the Black Business Council) (ABSIP)
Government
NB – no labour / community involvement

9. Who is Subject to the Charter
Applies to all institutions active in the financial services sector:
Banks
Long-term insurers
Short-term insurers
Re-insurers
Managers of collective investments
Listed entities …
Any other institution may opt-in

10. Exemptions
Less than 50 employees – human resource development provisions
Less than R10m designated investments – empowerment financing
Both of the above – totally exempt, but may opt-in
Companies subject to global policy – certain Board member provisions
Companies subject to global policy – ownership provisions
Wholesaler – access provisions

11. The pillars Human Resources Development Access to Financial Services
Empowerment Financing
Procurement & Enterprise Development
Ownership & Control
Corporate Social Investment

12. HR Development
Building a diverse, non-racial, non-sexist and sustainable intellectual pool
Un-quantified commitments to:
Mentorship, Career Path programs
Cultural Diversity and Gender sensitivity programs
Where possible, support Educational Institutions
Skills Audit to be undertaken to identify black skills shortage

13. Skills Development (5 points) Para. 5.2
Skills spend
Additional skills spend to address black skills
1.5% of the financial institution’s payroll (5.5)
Learnership programs (5.7)
Black matriculants up to an equivalent of 4.5% of staff to be enrolled in the 1st learnership cycle (3 years – which ended on the 31st December 2006)
Charter Council to investigate the feasibility of a 2nd learnership cycle

14. Employment Equity (15 points) Para. 5.3
2008 Employment Equity targets
Black Senior Management from 2002 estimate of 9.9% to a minimum target range of 20% to 25%
Black Middle Management from 2002 estimate of 17% to a minimum of 30%
Black Junior Management from 2002 estimate of 28% to a minimum target range of 40% to 50%

15. Targets for women Para. 5.4
Black women targets (including exec level) to be reviewed in 2007 but aim for 33% of black targets in all categories
Black Women Senior Management from 2002 estimate of 1.6% to a minimum target of 4%
Black Women Middle Management from 2002 estimate of 5% to a minimum target of 12%
Black Women Junior Management from 2002 estimate of 12% to a minimum target of 15%

16. Procurement & Enterprise Development Para.’s 6 & 7
To support the development of sustainable black enterprises, 3rd tier financial institutions & black SMEs
BEE Accreditation to reflect the Sector’s transformation strategy and its approach to empowerment

17. Procurement Para. 6 Procurement from BEE accredited companies:
50% by 2008
70% by 2014
Suppliers currently have to be rated on a broad – based methodology. Though this continues to be a problem as there are no accredited verification agencies as yet.

18. Enterprise Development Para. 7
Objectives
Foster new BEE companies
Develop existing BEE companies
Mechanisms
Skills transfer
Secondment of Staff
Infrastructure Support
Technical and Administrative support and assistance

19. Procurement & Enterprise development
Premium scoring to be awarded to Black Owned, Black Women-owned, Black SMEs or excellent performers in Sectoral Charters
Un-quantified Commitments
Promote early payment to Black SMEs
Encourage existing suppliers to become BEE accredited

20. Access (6 points for short –term insurers) Para. 8
Broadening the effective provision of financial services to LSM 1-5
To ensure that majority have access to basic affordable financial services
Defining Effective Access:
Affordability – cost effective services to LSM 1-5
Innovative, user friendly products/services; and
Non-discriminatory practices.
Mzansi insurance standards finalised
Challenges regarding Access:
Do we as an industry have a generic product such as the banks have done with Mzansi or do we produce guidelines for each organisation to produce its own product?
It is a sector initiative, how do individual companies get scored?
Para “ appropriate & affordably priced products and services for effective take-up by LSM 1-5”
Access committee drafting a position paper regarding access

21. Defining LSM 1- 5 LSM =Living Standards Measure
LSM is a unique means of segmenting the South African market. It cuts across race and other outmoded techniques of categorising people, and instead groups people according to their living standards using criteria such as degree of urbanisation and ownership of cars and major appliances.
This category of people are generally recognised as:
Living mostly in rural areas
Earning less than R per month
Having limited formal education
Having a low levels of financial literacy
Having limited access to services
Mostly the unbanked and uninsured

22. Access targets Para. 8.3.1 Transactional Banking products & services
80% (LSM 1-5)
Bank Savings products & services
Collective Investments products & services
1% (LSM 1-5)
Life Assurance products & services
23% (LSM 1-5)
Short term Risk Insurance products & service
6% (LSM 1-5)
Consumer and financial education
0.2% of each institution’s post tax profits p.a.
SAIA programme to assist insurers / others

23. Empowerment Financing Para. 9
Mobilising resources for investment in socio-economic transformation
“Affected Institutions” – those taking “designated investments”
“Designated investments” – deposits, savings, investments, risk insurance premiums
“At least” R75bn originally targeted
R123.5bn currently targeted
BEE transaction financing (5 points)
Targeted investments (low-income housing, transformational infrastructure, agriculture, black SMEs) (17 points)

24. Designated Investments
2.18 … means any form of statutory or voluntary deposit, saving, investment or risk insurance placed or made by the South African public (whether of a wholesale or retail nature, but not by one financial institution in another)
Short term sector is basing it designated investments on net assets and that brings the brokers into the equation.

25. Designated Investments
Designated Investments are defined to include all assets on the balance sheets of institutions included under the Financial Sector Charter. This means that the capital of financial institutions (equity or otherwise) is also regarded as part of Designated Investments. Assets not on an institution’s balance sheet (e.g. assets under administration) also qualify as Designated Investments for that institution.

26. Designated Investments
Sector
Estimate of DI at 31/12/2003 (Rbn)
Retirements funds
720
Banks
774
Life Offices
456
Collective Investments
136
Short-term insurers 34
Gross DI
2 120

27. Empowerment Financing
2.21 … means the provision of finance for or investment in:
Targeted investment; and
BEE transactions

28. Empowerment Financing
9.1.5 The total amounts to be invested in BEE transaction financing and targeted investments in terms of will be calculated as percentages of the total designated investments in the financial sector as at 31 December 2003, and currently estimated to be in the order of R2,000bn. Those percentages of designated investments in each financial institution will constitute the targets for BEE transaction financing and targeted investments respectively
Total points will be based on funding provided
2 types
Transfer of equity ownership
Provision of finance
Joint Ventures
Debt financing
Equity investments
To qualify for points ownership must include control
Total points cannot exceed total financing provided
No points will be allocated for rolled up financing costs or marked to market value of an investment

29. Implications Target for short-term insurers:
R34bn / R2,120bn of R122.5bn
1.6% of R122.5bn
R1.96bn (over 5 years)
R1.96 bn / R34 bn = 5.6% of designated investments

30. Targeted investment / BEE Transaction Financing targets
R50bn
Low-income housing
R42bn / R32bn
Black SME finance
R5bn
Agriculture
R1.5bn
Transformational infrastructure
R25bn
Total Target
R123.5bn

31. Ownership & control Para.’s 10 & 11
Enable genuine participation in the holding and strategic direction of the Sector
Black ownership to be aimed at:
Promoting productive and sustainable participation by black people
Encourage involvement of broad based constituencies in BEE transactions
Encourage ownership that is likely to add value to the financial institution
Encourage funding structures that facilitate transfer of economic interest

32. Ownership targets Para. 10
25% total black ownership in 2010 ( points)
A minimum of 10% must be Direct ownership
A maximum of 15% may be Indirect ownership – subject to the institution first achieving its Direct ownership target and promoting shareholder activism
Direct ownership above the minimum 10% can earn a maximum addition of 4 points
Foreign banks may achieve an equivalent score through
An additional BEE Transactions target equivalent to 25% of the local institution’s value; &
JVs and partnership with Black companies in terms of paragraph 10.3

33. Control targets (8 points) Para. 11
Black people in Boards of Directors to be a minimum target of 33% by 2008
Black Women in Boards of Directors to be a minimum target of 11% by 2008
Black people in Executive Management from the current % to a minimum target 25% by 2008
Black Women in Executive Management from the current 2% to a minimum target of 4% by 2008

34. Shareholder activism Para. 12
Shareholder activism is a critical component to the continued confidence and long term growth of the sector
Financial Institutions (including Pension Funds and Fund Managers) commit to undertaking various programs to promote shareholder awareness and encourage activism
Indirect ownership points in the scorecard are subject to financial institutions reporting on their support for shareholder activism

35. Corporate social investment (3 points) Para. 13
Projects aimed at black people, have a strong developmental approach & contribute toward transformation
Promote investment by the sector in areas specific to the needs of the majority
Target
- 0.5% p.a. of post tax operating profits

36. Application
Targets apply from 1st January 2004 until 31st December 2014
Principles embodied in the Charter are perpetual
Comprehensive review of Charter achievements in 2009 and 2015

37. Ensuring a result-orientated and effective implementation
Monitoring
Ensuring a result-orientated and effective implementation
Establishment of the Charter Council representative of the Sector and Stakeholders to oversee implementation

38. Charter Council Para
The Charter Council will establish an Executive with the delegated mandate to:
Receive, consider and approve Annual Audits from Financial Institutions
Issue guidance notes on the interpretation and application of Charter
Conduct reviews identified in the FSC
Engage Govt., DFI’s, Regulatory Agencies & BEE Advisory Council to promote implementation of the FSC
Independent Body

39. Charter Council Industry Associations 6 ABSIP 3 Labour 4 Community
Government

40. Charter Council Executive
Principal Officer appointed 01st October 2005 – Enoch Godongwana
Chairman rotates every year amongst the constituencies, currently Kennedy Bungane from ABSIP
Council offices established at 66 Marshall street, Jhb CBD

41. Reporting and Review Para. 15.2
Annual Report
Reporting period is January to December
Reports to be submitted by 31st March each year
Members of a group should report as part of the group, unless they are listed or opt to report separately
Each institution annual BEE report:
Audited scorecard and supporting documentation

42. Scorecard
A basic and objective framework against which Transformation and Empowerment can be measured
Provides a balance between imperatives for sector transformation and black economic empowerment
Points scoring in the various areas only starts from specific thresholds of performance

43. Scorecard
Component
Points
Human Resource Development 20
Procurement and Enterprise Development 15
Access to Financial Services
18 *
Empowerment Financing 22
Ownership and Control
Corporate Social Investment 3
* Short term industry = 6 ( 4 Products + 2 consumer education)

44. The Scorecard & Rating Year 2004 2005 2006 2007 2008 Interim rating
40%
55%
70%
85%
100%
Rating
< 16%
< 22%
< 28%
< 34%
< 40% E
16 – 22%
22 – 30.3%
30 – 38.5%
34 – 46.8%
40 – 55% D
22 – 28%
30.3 – 38.5%
38.5 – 49%
46.8 – 59.5%
55 – 70% C
28 – 32%
38.5 – 44%
49 – 56%
59.5 – 68%
70 – 80% B
> 32%
> 44%
> 56%
> 68%
> 80% A

45. Status
Charter was gazetted as a Transformation Charter by the DTI on the 09th February 2007.
As the Charter has not yet been gazetted as a Sector Code, government may still choose have its financial sector suppliers rated against the DTI Codes

46. Outstanding matters Regulations Review with Government
Gazette FSC as a sectoral code of practice for public sector procurement
Review of certain targets ?

48. SOUTH AFRICAN INSURANCE ASSOCIATION
Thank you!