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THE SOUTH AFRICAN INSURANCE ASSOCIATION. Barry Scott Chief Executive. Agenda. What is the SAIA Charters in general Financial Sector Charter Questions / discussion. SAIA – WHO AND WHAT WE ARE.

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slide1

THE SOUTH AFRICAN INSURANCE ASSOCIATION

Barry Scott

Chief Executive

agenda
Agenda
  • What is the SAIA
  • Charters in general
  • Financial Sector Charter
  • Questions / discussion
saia who and what we are
SAIA – WHO AND WHAT WE ARE

SAIA is the umbrella body for the short-term insurance industry, which promotes and creates an awareness and understanding of the industry.

54 members

the saia board
The SAIA Board

Mr Ronald Napier (Chairman)Lloyd’s South Africa

Mr Nick Beyers (Deputy Chairman)S A Eagle

Mr Bruce Campbell Mutual and Federal

Mr Paolo Cavalieri Hollard

Mr Steffen Gilbert Santam

Mr Rob Gordon AIG

Mr Andreas Kleiner Munich Re

Ms Margaret Louw Compass

Mr Willem Roos OUTsurance

Mr Adam Samie Lion of Africa

Mr Herman Schoeman Guardrisk

Ms Denise Shaw Stanbic Insurance

Ms C Silverman Gerling General Insurance

Mr Mike Strydom SASRIA

Mr Mike Truter Credit Guarantee

Mr Alexander Weissleder Swiss Re Africa Ltd

history
History
  • SAIA’s roots go back to the early part of this century, when the Council of Fire Insurance Companies was formed in 1907.
  • Various other associated bodies were formed from time to time. In 1973, one controlling body was formed, namely the SAIA.
slide7
The development of charters is:

a political process

the result of a series of negotiations

bee development
BEE development

1994

  • New political dispensation in SA
  • Emergence of first BEE initiatives

1995

  • Increased emergence of BEE Companies

1998

  • JSE meltdown
  • Subsequent fall of Black Chips

1999

  • Nail debacle
bee business issues
BEE business issues

2000

  • More high profile failures
  • Thebe (Macmed & FBC), Sekunjalo (Leisurenet), Malesela

2001

  • Real Africa Durolink stumbles

2002

  • Move to Broad Based BEE
bee legislative development
BEE legislative development

1996 – 1997

  • National Small Business Act
  • National Empowerment Fund Act
  • Skills Development Act
  • Employment Equity Act

1998 – 2000

  • Preferential Procurement Act
  • Promotion of Equality and Prevention of Unfair Discrimination Act
  • Liquid Fuels Charter
bee legislative development1
BEE legislative development

2001

  • Rural Development Program
  • BEE Commission Report

2002

  • Mineral Resources Act
  • Mining Charter

2003

  • Strategy Paper for Broad Based BEE
  • Broad Based BEE Act
government bee strategy
Policy Objectives

Substantial / significant

Increase in

Ownership & control

Number of enterprises

Senior/executive managers

Income levels

Broad based community ownership

Accelerated economic growth

Key principles

BEE broad based

Inclusive & apply to all

sectors of economy

Compliance with good governance & ethics

Part of growth strategy

Government BEE strategy
charters unpacked
Liquid Fuels

Initiated 2000

25% BEE ownership of aggregate value

All facets of industry

Covers EE, capacity building, procurement, JV’s, exploration & finance

Mining

Agreed 2002

26% BEE ownership by 2012, 15% by 2007

Covers EE, capacity building, procurement, beneficiation, CSI & rural development, management & ownership

Charters unpacked
future sector charters
Future sector charters
  • Information Communications & Technology Sector (ICT Charter)
  • Agricultural Sector – various sub-sectors already have Charters drafted
  • Food processing Sector
  • Property & Construction Sector
business rationale for charters
Business rationale for Charters
  • We support State attempts to enhance competitiveness by:
    • expanding the productive base
    • encouraging value-adding activities
  • Redistributive effects should widen consumer base
  • Contribute to skilled and economically active population
  • BEE will enhance medium/long term stability
  • Will yield new opportunities for all
slide16
Introducing the

Financial Sector

Charter

key outcomes
Key Outcomes
  • Sectoral Transformation strategy
  • Interventions on targeted areas of the economy
  • BEE financing strategy
  • A basis for engagement with stakeholders
principles
Principles
  • A commitment that is voluntarily developed by the Sector
  • A transformation framework that establishes mechanisms for BEE
  • 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
context
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)
vision
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”

why a charter
Why a Charter?
  • August 2002 Nedlac Financial Sector Summit
  • “despite significant progress … society remains characterised by racially based income …”
  • “… inhibits … full potential economic potential …”
why a charter1
Why a Charter?
  • “… addressing inequalities …”
  • “… unlock the sectors potential …”
  • “… financial sector … is central to … BEE”
what is the charter
What is the Charter?
  • Transformation Charter in terms of the Broad-Based BEE legislation;
  • Framework upon which BEE will be implemented in the financial sector;
  • Partnership programme as outlined in Government’s Strategy for Broad-Based BEE
what is the charter1
What is the Charter?
  • The basis for the sector’s engagement with other stakeholders including Government and labour;
  • Mechanism to establish targets
  • Outlines processes for implementing the charter and mechanisms to monitor and report on progress.
signatories
Signatories
  • Association of Collective Investments
  • Banking Council of South Africa
  • Bond Exchange of South Africa
  • Foreign Bankers Association
  • Institute of Retirement Funds
  • Investment Managers Association of South Africa
  • JSE Securities Exchange
  • Life Offices Association
  • South African Insurance Association
  • South African Reinsurance Offices Association
  • Association of Black Securities and Investment Professionals (mandated by the Black Business Council)
  • Government
  • NB – no labour / community involvement
who is subject to the charter
Who is Subject to the Charter
  • Voluntary 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
exemptions
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
brokers
Brokers?
  • No direct reference to brokers
  • Commission not included anywhere in the Charter
  • Brokers may opt-in
    • Government / Parastatal business
  • Important role to play
    • procurement
the pillars
The pillars
  • Human Resources Development
  • Access to Financial Services
  • Empowerment Financing
  • Procurement & Enterprise Development
  • Ownership & Control
  • Shareholder Activism
  • Corporate Social Investment
hr development
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
skills development 5 points
Skills Development (5 points)
  • Skills spend
    • Additional skills spend to address black skills
    • 1.5% of the financial institution’s payroll
  • Learnership programs
    • Black matriculants up to an equivalent of 4.5% of staff to be enrolled in the 1st learnership cycle (3 years)
    • Charter Council to investigate the feasibility of a 2nd learnership cycle
employment equity 15 points
Employment Equity (15 points)

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%
targets for women
Targets for women

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%
access 18 points
Access (18 points)
  • 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:
    • Accessibility – within 20km radius of a point of service:
    • Affordability – cost effective services to LSM 1-5
    • Innovative, user friendly products/services; and
    • Non-discriminatory practices.
  • Impact of these access standards to be assessed by the Charter Council
access targets
Access targets
  • Transactional Banking products & services
    • 80% (LSM 1-5)
  • Bank Savings products & services
    • 80% (LSM 1-5)
  • Collective Investments products & services
    • 1% (LSM 1-5)
  • Life Assurance products & services
    • under discussion (LSM 1-5)
  • Short term Risk Insurance products & service
    • 6% (LSM 1-5)
      • SAIA Access Committee
  • Consumer and financial education
    • 0.2% of each institution’s post tax profits p.a.
    • SAIA programme to assist insurers / others
empowerment financing
Empowerment Financing
  • 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
  • R122bn currently targeted
    • BEE transaction financing (5 points)
    • Targeted investments (low-income housing, transformational infrastructure, agriculture, black SME’s) (17 points)
procurement enterprise development
Procurement & EnterpriseDevelopment
  • 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
procurement
Procurement
  • Procurement from BEE accredited companies:
    • 50% by 2008
    • 70% by 2014
  • Conditional upon Charters in:
    • Information and Communications Technology
    • Advertising sector
    • Automotive industry
    • Building sector
  • Targets reviewed in 2005
  • Specific review of claims targets for short-term insurers in March 2005
enterprise development
Enterprise Development
  • Objectives
    • Foster new BEE companies
    • Develop existing BEE companies
  • Mechanisms
    • Skills transfer
    • Secondment of Staff
    • Infrastructure Support
    • Technical Support
procurement enterprise development1
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
ownership control
Ownership & control

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
ownership targets
Ownership targets
  • 25% total black ownership in 2010 (14 + 4 points)
    • A minimum of 10% must be Direct ownership
    • A maximum of 15% may be Indirect ownership
    • Direct ownership above the minimum 10% can earn a maximum addition of 4 points
  • Foreign institutions 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
control targets 8 points
Control targets (8 points)
  • 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
shareholder activism
Shareholder activism
  • 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
corporate social investment 3 points
Corporate social investment (3 points)
  • 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

application
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
monitoring
Monitoring

Ensuring a result-orientated and effective implementation

  • Establishment of the Charter Council representative of the Sector and Stakeholders to oversee implementation
charter council
Charter Council
  • 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
scorecard
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
reporting and review
Reporting and Review
  • Annual Report
    • First report for year ending 31st December 2004, by 31st March 2005
    • Thereafter 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
    • Progress report
outstanding matters
Outstanding matters
  • Finalize Empowerment Financing targets
  • Regulations Review with Government
  • Engage with social partners and Govt. on the detail & implementation of Access Provisions
  • Set up of the Charter Council (1st meeting 14/10)
  • Gazette FSC as a Transformational Charter and the Scorecard as a code of practice for public sector procurement
  • Review of HR targets ?
government levers acts
Government levers - Acts
  • Legislation to encourage BEE
    • Has focused on workplace transformation and HR development
  • Tries to encourage industry to embrace BEE rather than prescribe
  • Ever more onerous legislation if industry does not transform
government policy instruments
Government policy instruments
  • Legislation
    • Broad based Black Economic Empowerment Act
  • Regulation
    • Various regulatory instruments eg quotas/licences
  • State Owned Enterprise Restructuring
    • Restructuring of SOE’s to transfer equity for BEE
  • Preferential procurement
    • Utilise State leverage in awarding contracts
  • Institutional support
    • State support for BEE Advisory Council & Business forums
government levers procurement
Government levers - Procurement
  • Government is an enormous consumer of services and in many cases it is the largest SA customer:
    • Has powerful leverage in forcing BEE
    • The Preferential Procurement Act is the primary legislation for State procurement
    • Price is the main driver – but the status of BEE is a deciding factor in awarding State contracts
government levers charters
Government levers - Charters
  • Industry seeks to regulate itself to encourage BEE
  • Not legally binding but may be a precursor to impending legislation or other State action
  • Affords industry opportunity to decide its own standards and time frames
  • Foster a spirit of co-operation and understanding of BEE issues