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THE SOUTH AFRICAN INSURANCE ASSOCIATION

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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THE SOUTH AFRICAN INSURANCE ASSOCIATION

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  1. THE SOUTH AFRICAN INSURANCE ASSOCIATION Barry Scott Chief Executive

  2. Agenda • What is the SAIA • Charters in general • Financial Sector Charter • Questions / discussion

  3. 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

  4. 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

  5. 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.

  6. CHARTERS IN GENERAL

  7. The development of charters is: a political process the result of a series of negotiations

  8. 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

  9. 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

  10. 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

  11. 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

  12. 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

  13. 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

  14. Future sector charters • Information Communications & Technology Sector (ICT Charter) • Agricultural Sector – various sub-sectors already have Charters drafted • Food processing Sector • Property & Construction Sector

  15. 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

  16. Introducing the Financial Sector Charter

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

  18. 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

  19. 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)

  20. 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”

  21. Why a Charter? • August 2002 Nedlac Financial Sector Summit • “despite significant progress … society remains characterised by racially based income …” • “… inhibits … full potential economic potential …”

  22. Why a Charter? • “… addressing inequalities …” • “… unlock the sectors potential …” • “… financial sector … is central to … BEE”

  23. 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

  24. 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.

  25. 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

  26. 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

  27. 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

  28. 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

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

  30. 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

  31. 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

  32. 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%

  33. 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%

  34. 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

  35. 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

  36. 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)

  37. Targeted investment / BEE Transaction Financing targets

  38. 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

  39. 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

  40. Enterprise Development • Objectives • Foster new BEE companies • Develop existing BEE companies • Mechanisms • Skills transfer • Secondment of Staff • Infrastructure Support • Technical Support

  41. 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

  42. 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

  43. 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

  44. 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

  45. 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

  46. 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

  47. 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

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

  49. 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

  50. Charter Council

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