SAIA APPROVED PTY LTD

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THE SOUTH AFRICAN INSURANCE ASSOCIATION
Barry Scott Chief Executive
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Agenda

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

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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

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The SAIA Board
Mr Ronald Napier (Chairman) Lloyds 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
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History

• SAIAs 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.

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• CHARTERS IN GENERAL

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• The development of charters is
• a political process
• the result of a series of negotiations

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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

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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

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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

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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

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Government BEE strategy

• Key principles
• BEE broad based
• Inclusive apply to all
• sectors of economy
• Compliance with good governance ethics
• Part of growth strategy

• Policy Objectives
• Substantial / significant
• Increase in
• Ownership control
• Number of enterprises
• Senior/executive managers
• Income levels
• Broad based community ownership
• Accelerated economic growth

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Charters unpacked

• Liquid Fuels
• Initiated 2000
• 25 BEE ownership of aggregate value
• All facets of industry
• Covers EE, capacity building, procurement, JVs,
  exploration finance

• Mining
• Agreed 2002
• 26 BEE ownership by 2012, 15 by 2007
• Covers EE, capacity building, procurement,
  beneficiation, CSI rural development,
  management ownership

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Future sector charters

• Information Communications Technology Sector
  (ICT Charter)
• Agricultural Sector various sub-sectors already
  have Charters drafted
• Food processing Sector
• Property Construction Sector

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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

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• Introducing the
• Financial Sector
• Charter

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Key Outcomes

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

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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

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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)

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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

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Why a Charter?

• August 2002 Nedlac Financial Sector Summit
• despite significant progress society remains
  characterised by racially based income
• inhibits full potential economic potential

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Why a Charter?

• addressing inequalities
• unlock the sectors potential
• financial sector is central to BEE

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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 Governments
  Strategy for Broad-Based BEE

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What is the Charter?

• The basis for the sectors 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.

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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

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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

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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

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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

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The pillars

• Human Resources Development
• Access to Financial Services
• Empowerment Financing
• Procurement Enterprise Development
• Ownership Control
• Shareholder Activism
• Corporate Social Investment

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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

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Skills Development (5 points)

• Skills spend
• Additional skills spend to address black skills
• 1.5 of the financial institutions 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

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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

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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

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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

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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 institutions post tax profits p.a.
• SAIA programme to assist insurers / others

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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 SMEs) (17 points)

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Targeted investment / BEE Transaction Financing
targets
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Procurement EnterpriseDevelopment

• To support the development of sustainable black
  enterprises, 3rd tier financial institutions
  black SMEs
• BEE Accreditation to reflect the Sectors
  transformation strategy and its approach to
  empowerment

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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

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Enterprise Development

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

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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

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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

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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 institutions value
• JVs and partnership with Black companies in terms
  of paragraph 10.3

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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

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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

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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

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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

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Monitoring

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

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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., DFIs, Regulatory Agencies BEE
  Advisory Council to promote implementation of the
  FSC
• Independent Body

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Charter Council
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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

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Scorecard
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Scorecard
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Scorecard Interim Rating
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Scorecard Interim Rating
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Scorecard
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Scorecard
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Scorecard
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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

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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 ?

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THE SOUTH AFRICAN INSURANCE ASSOCIATION
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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

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Government policy instruments

• Legislation
• Broad based Black Economic Empowerment Act
• Regulation
• Various regulatory instruments eg quotas/licences
• State Owned Enterprise Restructuring
• Restructuring of SOEs to transfer equity for BEE
• Preferential procurement
• Utilise State leverage in awarding contracts
• Institutional support
• State support for BEE Advisory Council Business
  forums

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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

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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