The Insurance and Pensions Commission (Ipec) has issued a new set of guidelines to regulate investment portfolios of insurance companies and pension funds, in a move aimed at improving confidence and performance of the sector.
Report by Clive Mphambela
The new regulations, outlined in a letter to industry participants, dated March 20 2013, were issued after an extensive consultative process that led to an industry agreement on the proposed guidelines.
Under the new guidelines, Ipec has set the upper levels of investment for prescribed assets at 40%, properties 50%, quoted shares 50%, unquoted shares 10%, money market investments 45%, cash 10% and other investments 10%.
The guidelines state that cash in any one bank should not exceed 5% of an insurance company’s investments and the combined total of properties and equity investments should not exceed 70%.
No more than 10% of a pension fund should be invested with a single bank.
The Commissioner of Insurance Manette Mpofu said the guidelines were with immediate effect. She said Ipec recognised that there would be need for investment managers to re-align their investment portfolios and this could take time.
“Cognisant of the need for adjustments in some of the investment portfolios, Ipec expects full compliance by 1st April 2016. However, Ipec will, on an ongoing basis, monitor progress towards full compliance,” Mpofu said.
The industry-wide consultative process which began early last month, has resulted in the issuance of the new guidelines, which according to a letter written to industry players last month, were meant to, among other things, maintain confidence in life assurance companies and pension funds by exercising fairness in the payment of benefits. The new rules are also aimed at ensuring that pension payouts are effected timeously and in line with fund members’ reasonable expectations.
The new regulatons also seek to maximise the rates of return so as to ensure that life companies and pension funds remain solvent and viable, thus being able to timeously meet their obligations. Ipec looks to ensure regulatory compliance by adhering to the provisions of insurance and pensions legislation.
Mpofu said life assurance companies had a fiduciary duty to invest in assets which would enhance their ability to settle claims in time, maturing policies as well as pay fair and reasonable pensions.
“Moreover, the rights and interests of beneficiaries must be protected at all times,” she said.
The new measures are generally aimed at improving the solvency of insurance companies.
“Solvency is critical in ensuring the viability of life assurance companies and pension funds. This in turn enhances their ability to meet obligations timeously as and when they fall due,” she said.
If an insolvent life assurance company or pension fund is incapacitated from meeting its obligations, this would no doubt worsen confidence levels in the insurance and pensions sector.
According to the new rules, no more than 10% of a fund should be invested in a single listed equity counter. The proposals further state that an insurer cannot put more than 10% of its investments in an associate company and neither can a pension fund invest or lend more than 10% to the employer organisation.