1. Competition and Regulation in SADC: Insurance Services
Presentation for the
SADC Financial Services Liberalisation Forum,
1-2 July 2013, Johannesburg
Presented by Christopher Smith,
GFA Consulting Group

2. Competition and Regulation in SADC: Insurance Services
Outline
Structure of the SADC insurance industry
Competition and foreign participation in the SADC insurance industry
SADC countries’ GATS commitments in insurance services
SADC insurance services regulation and trade barriers in insurance services
Opportunities and challenges for regional liberalisation of insurance services in SADC
Competition and Regulation in SADC: Insurance Services

3. Competition and Regulation in SADC: Insurance Services
1. Structure of the SADC insurance industry – number and types of operators
Number of licensed insurance companies (2010)
Number of licensed insurance brokers (2010)
Number of licensed insurance agents (2010)
Number of licensed reinsurance companies (2010)
Angola 9
2.4% 16
104 1
Botswana 18
4.9% 42
377 2
D.R. Congo
(1) -
n.a.
Lesotho 7
1.9% 11
199
Malawi 12
3.3% 10 24
Mauritius 21
5.7%
180
Mozambique 8
2.2% 35
282
Namibia 17
4.6%
105
2,610
Seychelles
(7)
(10)
(40)
(0)
South Africa
182
49.5%
12,094
194,124
Swaziland 31 91
Tanzania 26
7.1% 72
190
Zambia 14
3.8% 46
254
Zimbabwe 45
12.2% 27
629
SADC Total
368
100%
12,513
198,960
Competition and Regulation in SADC: Insurance Services

4. Competition and Regulation in SADC: Insurance Services
1. Structure of the SADC insurance industry – market size and distribution of GPW (2010)
Total SADC GPW in 2010:
56,975 USD millions
Competition and Regulation in SADC: Insurance Services

5. Competition and Regulation in SADC: Insurance Services
1. Structure of the SADC insurance industry – insurance density and penetration
Growth of total GPW over last 5 years (until 2010)
Insurance penetration ratio (GPW contribution to GDP) (2010)
Insurance density (GPW per capita) in Dollar units (2010)
Angola
61.30%
1.00%
43.0
Botswana
48.58%
2.80%
236.9
D.R. Congo
n.a.
Lesotho
53.58%
4.45%
50.1
Malawi
81.65%
1.65%
6.5
Mauritius
76.86%
5.86%
433.9
Mozambique
96.07%
1.26%
5.3
Namibia
68.92%
7.98%
426.0
Seychelles
South Africa
38.84%
19.30%
1,070.0
Swaziland
2.12%
83.0
Tanzania
117.94%
0.89%
4.5
Zambia
99.38%
1.38%
17.1
Zimbabwe
3.01%
15.0
SADC Average
40.63%
11.76%
211.0
Competition and Regulation in SADC: Insurance Services

6. 1. Structure of the SADC insurance industry – microinsurance coverage
Competition and Regulation in SADC: Insurance Services

7. Competition and Regulation in SADC: Insurance Services
1. Structure of the SADC insurance industry – life and non-life insurance distribution
Countries with a larger life insurance subsector
Countries with a larger
non-life insurance subsector
Non-life Insurance
25%
Competition and Regulation in SADC: Insurance Services

8. Competition and Regulation in SADC: Insurance Services
2. Competition and foreign participation in the SADC insurance industry
SADC countries
No. of companies
Market concentration:
(Market share (GPW) of largest 2 companies)
Foreign Participation:
(GPW written by majority foreign-owned companies)
Comments
Botswana
Life 7
86% (2010)
80% – 90%
very concentrated:
Botswana Life 85.6% GPW
high SA/ZIM ownership
General 11
49% (2010)
less concentrated
SA/ZIM oligopoly
D.R. Congo 1
100% (2009) 0%
state-owned monopoly provider: Société Nationale d’Assurance” (SONAS)
recent efforts towards liberalis.
Lesotho
4 (+1)
96% (2007)
80% - 90%
Metropolitan Lesotho 85% GPW
1 (+1)
100% (2007)
~ 50%
very concentrated
Leading insurer 50% gov.-owned
Competition and Regulation in SADC: Insurance Services

9. Competition and Regulation in SADC: Insurance Services
2. Competition and foreign participation in the SADC insurance industry
SADC countries
No. of companies
Market concentration:
(Market share (GPW) of largest 2 companies)
Foreign Participation:
(GPW written by majority foreign-owned companies)
Comments
Malawi
Life 4
84% (2011)
80% - 90%
foreign-owned Old Mutual and NICO Life are leading companies
General 7
56% (2011)
40% - 60%
NICO General Insurance (foreign-owned) market leader (37%)
Mauritius 15
71% (2011)
SICOM and BAI market leaders 14
46% (2011)
Mauritius Union Assurance (MUA) and SWAN market leaders
Mozambique
Life/ 2
65% (2007)
EMOSE (state-owned) and SIM (mixed) market leaders 5
EMOSE and SIM market leaders;
Global Alliance third (fully foreign-owned)
Namibia 17 13
75% (3 largest; 2010)
70% - 90%
Three largest insurers are South African subsidiaries
Competition and Regulation in SADC: Insurance Services

10. Competition and Regulation in SADC: Insurance Services
2. Competition and foreign participation in the SADC insurance industry
SADC countries
No. of companies
Market concentration:
(Market share (GPW) of largest 2 companies)
Foreign Participation:
(GPW written by majority foreign-owned companies)
Comments
Seychelles
Domestic 4
high
20% - 50%
SACOS Life, SACOS Insurance (government-owned), H. Savy Ins. (mixed owned)
Non-dom. 3
100% (2011)
Swaziland
Life 6
70% (2010/11)
90% - 100%
SRIC and Old Mutual market leaders (both foreign owned)
9 of 10 companies owned by SA parent firms/shareholders; one ZIM
General
100% (2010/11)
SRIC: 99% market share alone
Tanzania
2 (+4)
83% (2010)
40% - 60%
African Life and NIC (both mixed ownership) market leaders; 20
24% (2010)
less concentrated than life subsector
Competition and Regulation in SADC: Insurance Services

11. 2. Competition and foreign participation in the SADC insurance industry
SADC countries
No. of companies
Market concentration:
(Market share (GPW) of largest 2 companies)
Foreign Participation:
(GPW written by majority foreign-owned companies)
Comments
Zimbabwe
Life 9
66% (2012)
<50%
Old Mutual (foreign-owned) market leader (46%)
General 27
First seven insurers account for 72%
oligopoly market structure
Majority of companies owned by Zimbabweans
High concentration in most SADC insurance markets – often more pronounced in the life insurance subsector;
High involvement by foreign owned insurers in many SADC insurance markets;
Presence of strong regional insurance companies.
Competition and Regulation in SADC: Insurance Services

12. Competition and Regulation in SADC: Insurance Services
Outline
Structure of the SADC insurance industry
Competition and foreign participation in the SADC insurance industry
SADC countries’ GATS commitments in insurance services
SADC insurance services regulation and trade barriers in insurance services
Opportunities and challenges for regional liberalisation of insurance services in SADC
Competition and Regulation in SADC: Insurance Services

13. 3. GATS commitments in insurance services
Only 3 SADC Member States have made commitments in insurance services at the WTO level: Lesotho, Mauritius, South Africa.
Lesotho
Mode
Market Access
National Treatment
07.A. All insurance and insurance related services
Direct Life Insurance (CPC )
Non-life insurance services (CPC 8129+)
Reinsurance and Retrocession (CPC ) 1
Unbound 2
None 3
Requirement to be incorporated as a public company
Requirement for written approval by Registrar of Companies for acquisition of 25% or more of ownership in an insurer 4
Unbound, except as indicated in the horizontal section
Competition and Regulation in SADC: Insurance Services

14. 3. GATS commitments in insurance services
Mauritius
Mode
Market Access
National Treatment
07.A. a. Direct (incl. Co-insurance)
Direct Insurance Life and Non-Life 1
Unbound
None 2
None, except for assets and insurance which are compulsory 3 4
Unbound, except horizontal section
07.A. All insurance and Insurance-related Services
(b) Reinsurance and retrocession
None, except 5% compulsory reinsurance with African-Re Corp.
(c) Insurance intermediation comprising Agents and Brokers
Must act only for insurers registered in Mauritius and must be registered with commercial presence in Mauritius
Must act only for insurers registered in Mauritius
Competition and Regulation in SADC: Insurance Services

15. 3. GATS commitments in insurance services
South Africa
Mode
Market Access
National Treatment
07.A. All insurance and insurance-related services
Direct Life Insurance (CPC )
Direct non-life insurance services (CPC 8129+)
Reinsurance and Retrocession (CPC )
Insurance intermediation and auxiliary services (CPC 8140) 1
Unbound 2
None 3
Requirement to be incorporated as a public company
Requirement for written approval by Registrar of Companies for acquisition of 25% or more of ownership in an insurer
Executive chairman, public officer and the majority of directors must be resident in South Africa
Life insurance actuaries must be resident in South Africa 4
Unbound, except as indicated in the horizontal section
Competition and Regulation in SADC: Insurance Services

16. 3. GATS commitments in insurance services - conclusions
No restrictions on national treatment;
Specification of some market access limitations, mostly with regard to commercial presence (mode 3);
Market access under mode 1 (cross-border supply) is left unbound by all three countries;
GATS commitments do not provide a complete picture of the extent of liberalisation in SADC;
Many SADC countries have undergone significant reform of their financial services systems, but have not committed the reforms in GATS;
Lack of SADC countries’ participation in GATS negotiations
Indication that some countries may not want to bind themselves until they are certain that the reforms are successful.
Competition and Regulation in SADC: Insurance Services

17. Competition and Regulation in SADC: Insurance Services
4. Regulation/ Trade Barriers in Insurance Services in SADC – sources used
Insurance Acts/Regulations and national legislation
World Bank Services Trade Restrictions Database (no data for Angola, Seychelles and Swaziland)
Other secondary sources (e.g. WTO Trade Policy Reviews, etc.)
Country
Year of the Insurance Act in use
Angola
2010
Namibia
1998
Botswana
2005
Seychelles
2008
D.R. Congo
1966
South Africa
Lesotho
1976
Swaziland
Malawi
Tanzania
2009
Mauritius
Zambia
Mozambique
2003
Zimbabwe
2004
Competition and Regulation in SADC: Insurance Services

18. 4. Trade Barriers in Insurance Services in SADC - Types of Barriers
1) Market Access Limitations
a) Limitations on the number of service suppliers
b) Limitations on the total value of services transactions or assets
c) Limitations on the total number services operations / quantity of service output
d) Limitations on the number of natural persons
e) Restrictions on the type of legal entity or joint venture
Establishment of a branch
Establishment of a subsidiary
f) Limitations on the participation of foreign capital
2) National Treatment Limitations
a) Discriminatory measures in licensing
b) Other discriminatory measures
3) Other restrictions
a) Mandatory cessation requirements to domestic reinsurers
b) Limitations on the repatriation of earnings
c) Minimum capital requirements for licensing
d) Purchase of insurance from suppliers located outside the host country
Competition and Regulation in SADC: Insurance Services

19. 4. Trade Barriers in Insurance Services in SADC
1) Market Access Limitations
a) Limitations on the number of service suppliers
b) Limitations on the total value of services transactions or assets
c) Limitations on the total number services operations / quantity of service output
The number of licenses available to applicants not limited in SADC countries; exception: D.R. Congo (state-owned monopoly SONAS)
Services transactions generally also not limited apart from mandatory cessation requirements to domestic reinsurers;
None of the jurisdictions has fixed quotas with regard to the set-up of branches or limitations on the number of insurance policies to be sold.
Competition and Regulation in SADC: Insurance Services

20. 4. Trade Barriers in Insurance Services in SADC
1) Market Access Limitations
d) Limitations on the number of natural persons
Many SADC countries apply Mode 4 restrictions referring to the ability of insurance companies to employ foreign staff – mostly residency and citizenship restrictions;
Domestic residency requirements:
Botswana: for principal officers;
Malawi: for the majority of the directors and the chairperson of the board;
Mauritius: Minimum of one member of the board of directors;
Mozambique: for >50% of the members of the board;
South Africa: for head office and public officer;
Zambia: for Chief Executive Officer and minimum of 50% of the board of directors.
Competition and Regulation in SADC: Insurance Services

21. 4. Trade Barriers in Insurance Services in SADC
1) Market Access Limitations
d) Limitations on the number of natural persons (continued)
Citizenship requirements:
Namibia: Managing director and a minimum of 50% of the members of the board have to be Namibian citizens resident in Namibia;
Swaziland: Minimum of 25% of the directors of a company have to be citizens of Swaziland;
Tanzania: One third of the members of the board must be Tanzanian citizens;
Zimbabwe: Minimum of 51% of the members of the board must be Zimbabwean citizens
Other limitations:
Labour market test requirement for foreigners (Malawi, Zimbabwe);
Mozambique: Quotas for foreign employees according to the size of the company
Malawi: Maximum of five top executive positions may be occupied by foreigners
Competition and Regulation in SADC: Insurance Services

22. 4. Trade Barriers in Insurance Services in SADC
1) Market Access Limitations
e) Restrictions on the type of legal entity or joint venture
Establishment of a branch
Establishment of a subsidiary
Establishment of a branch
The majority of SADC jurisdictions does not allow foreign insurers to establish a commercial presence through a branch – insurers must be locally incorporated under the Companies Act;
The two exceptions are: Mauritius and Mozambique; Mozambique requires the foreign insurer to demonstrate that he has at least five years of operational experience for the particular insurance product.
Establishment of a subsidiary
The majority of SADC countries are open and do not impose any ownership restrictions on the foreign insurer;
Exceptions: D.R. Congo and Swaziland restrict establishment of foreign subsidiaries
Tanzania: foreign ownership limited to 66.7%
Zimbabwe: at least 51% of ownership has to be held by indigenous Zimbabweans.
Competition and Regulation in SADC: Insurance Services

23. 4. Trade Barriers in Insurance Services in SADC
1) Market Access Limitations
f) Limitations on the participation of foreign capital
Many SADC countries do not impose any barriers: Botswana, Lesotho, Malawi, Mozambique, Namibia, Seychelles, and Zambia all allow foreign investors to acquire domestic insurance companies without setting any limits on foreign ownership;
In some countries requirement for approval:
Mauritius: Approval by Financial Services Commission if acquiring significant interest in an insurer;
South Africa: Approval by Registrar when acquisition of 25% or more;
Angola: Approval by Ministry of Finance for foreign shareholding in excess of 50%;
Three countries limit foreign ownership: Swaziland (49%), Tanzania (66.7%) and Zimbabwe (49%)
SADC countries are more restrictive in the acquisition of domestic government- owned insurance companies: Namibia, South Africa, Tanzania and DRC do not allow this; Lesotho limits foreign ownership to 70%; Botswana and Zimbabwe do not allow foreigners to acquire controlling stakes.
Competition and Regulation in SADC: Insurance Services

24. 4. Trade Barriers in Insurance Services in SADC
2) National Treatment Limitations
a) Discriminatory measures in licensing
b) Other discriminatory measures
Almost no National Treatment Limitations exist in the national legislations – domestic and foreign insurers are treated equally;
Two small exceptions:
Malawi: Foreign applicants seeking to obtain a license may not be exempted from solvency margin requirements, whereas this may be possible for domestic applicants;
Mauritius: branches of foreign insurers may not invest more than 10% of the total assets of the insurer in commodities or corporations whose shares are listed on a licensed exchange in Mauritius or certain other specified exchanges.
Competition and Regulation in SADC: Insurance Services

25. 4. Trade Barriers in Insurance Services in SADC
3) Other Restrictions
a) Mandatory cessation requirements to domestic reinsurers
Four countries prescribe their insurers to cede a certain amount of their business with a predetermined insurer:
Tanzania: Minimum of 5% of the portfolio with the African Reinsurance Corporation (Africa-Re); another 10% with the Preferential Trade Area reinsurance Company (ZEP-Re);
Mauritius: Minimum of 5% with Africa-Re;
Namibia: Minimum of 20% with Namib-Re;
Zimbabwe: 100% with domestic reinsurer, although the Insurance commissioner my allow excess insurance to be insured outside Zimbabwe in the case of insufficient domestic capacity.
Competition and Regulation in SADC: Insurance Services

26. 4. Trade Barriers in Insurance Services in SADC
3) Other Restrictions
b) Limitations on the repatriation of earnings
Foreign insurance companies face barriers in some SADC countries, mostly with regard to foreign exchange regulations;
In Lesotho, Malawi, Mozambique, and Zimbabwe repatriation of earnings requires the prior approval of the Central Bank;
In Namibia, repatriation of dividends is subject to a withholding tax of 10%.
Competition and Regulation in SADC: Insurance Services

27. 4. Trade Barriers in Insurance Services in SADC
3) Other Restrictions
c) Minimum capital requirements for licensing
Minimum share capital requirements differ widely among SADC member states.
Country
Life Insurers
(2010)
Non-Life Insurers
Angola
8,000,000
6,000,000
Namibia
150,200
15,000
Botswana
310,100
Seychelles
D.R. Congo
South Africa
1,507,700
753,900
Lesotho
7,900
8,900
Swaziland
285,700
Malawi
497,300
331,600
Tanzania
675,900
Mauritius
Zambia
208,300
Mozambique
2,030,300
1,000,000
Zimbabwe
500,000
300,000
Competition and Regulation in SADC: Insurance Services

28. 4. Trade Barriers in Insurance Services in SADC
3) Other Restrictions
Purchase of insurance from insurers located outside the host country
(cross-border)
Many SADC countries restrict the ability of local consumers to access insurance services (cross border) from foreign providers located outside the country
Mostly the case for short-term and long-term insurance products;
More openness for reinsurance contracts across the border;
Often requirement to demonstrate that the specific insurance product is locally not available – practical application is unclear;
Tanzania and Zimbabwe require approval by the regulating authority for cross-border transactions;
Zimbabwe and Mozambique impose restrictions on the value and the sector receiving the service;
South Africa prohibits the solicitation of insurance by foreign non-registered insurers.
Competition and Regulation in SADC: Insurance Services

29. Competition and Regulation in SADC: Insurance Services
4. Trade Barriers in Insurance Services in SADC Evidence of Barriers in SADC
1) Market Access Limitations
a) Limitations on the number of service suppliers
b) Limitations on the total value of services transactions or assets
c) Limitations on the total number services operations / quantity of service output
d) Limitations on the number of natural persons
e) Restrictions on the type of legal entity or joint venture
Establishment of a branch
Establishment of a subsidiary
f) Limitations on the participation of foreign capital
2) National Treatment Limitations
a) Discriminatory measures in licensing
b) Other discriminatory measures
3) Other restrictions
a) Mandatory cessation requirements to domestic reinsurers
b) Limitations on the repatriation of earnings
c) Minimum capital requirements for licensing
d) Purchase of insurance from suppliers located outside the host country
Competition and Regulation in SADC: Insurance Services

30. Competition and Regulation in SADC: Insurance Services
5. Opportunities and challenges for regional liberalisation of insurance services in SADC
Opportunities
Large foreign insurers might be able to absorb risks which domestic insurers are unable or unwilling to take on
Competition from new entrants might lead to better products and services and lower prices
New entrants might also contribute to the transfer of technical and industry know-how to local providers
Challenges/concerns
Foreign-based firms may create regulatory challenges – complex management structures, jurisdictional overlaps, new products etc.
Admission of larger insurers could result in anti-competitive practices, including predatory pricing
More intensive competition could result in selective marketing to high-value clients while lower-value clients are ignored.
Competition and Regulation in SADC: Insurance Services

31. Competition and Regulation in SADC: Insurance Services
5. Opportunities and challenges for regional liberalisation of insurance services in SADC
SADC - key policy issues and questions:
Insurance penetration is generally low; and market concentration and foreign participation is generally high
Barriers to entry do not seem, in law, to be particularly onerous
Why does the SACU insurance market seem to be that much more mature that that of the rest of SADC (excl. Mauritius)?
Is it possible and desirable to extend some of the regulatory features of the SACU insurance market to the rest of SADC?
Could regional harmonisation in insurance regulation contribute to some ‘convergence’ in coverage?
Concluding a reasonably comprehensive and consistent agreement in this sector seems possible
Competition and Regulation in SADC: Insurance Services

32. Competition and Regulation in SADC: Insurance Services
5. Opportunities and challenges for regional liberalisation of insurance services in SADC
SADC - key scheduling issues and questions:
Despite the emergence of a number of large and credible regional companies, they are generally required to incorporate in all countries to do business
Is regional cross-border trade in any insurance products permissible / possible?
Might it be possible to develop a regional prudential framework for the establishment of branch offices, which does not put policy holders at risk?
Mandatory prescriptions for domestic reinsurance
Could there be benefits from opening this cession to regional reinsurance firms?
Residency & citizenship requirements for senior officials (differ markedly by country)
Does this cause problems for regional insurance companies? What is necessary / optimal for regulatory supervision?
Many of the potential barriers to trade are couched in prudential regulations
Are SADC prudential regulations in line with international best practice?
Is it possible & desirable for SADC member states to harmonise certain aspects of prudential regulation in order to facilitate intra-regional trade & investment?
Competition and Regulation in SADC: Insurance Services

33. Thank you for your attention.
Competition and Regulation in SADC: Insurance Services