The retail chains are supported by Monarch Insurance, the group’s short-term insurer, which offers a range of optional short-term insurance products to customers purchasing merchandise on credit.
Monarch is registered with the Financial Services Board and operates under a short-term insurance licence.
Insurance cover is offered for the settlement of customers’ outstanding debt in the event of death, permanent disability, retrenchment and the replacement of goods as a result of accidental loss, such as ﬁre, theft or natural disaster.
The move from term to monthly insurance policies in all three trading brands will signiﬁcantly reduce the capital required by Monarch. In order to further de-risk the business (in light of a potential sovereign rating downgrade) a large portion of the equity and bond portfolio within Monarch was realised in February 2016.
This capital gain increased investment income by R 452.6 million to R 600.6 million.
On 13 November 2015, draft credit life insurance regulations were published for public comment. The draft regulations propose a maximum cap on the premium that may be charged for credit life insurance (“CLI”) of R 4.50 per R 1,000 of the deferred amount, or R 5.50 per R 1,000 if certain additional cover is offered.
On 6 January 2016, Monarch submitted comprehensive comments on the draft regulations to the DTI. The key submissions included:
- No detail or actuarial support has been provided as to how the proposed cap was calculated and no account has been taken of the actual risks and costs of insurers. The proposed cap appears to be arbitrary in its formulation and application.
- Monarch provided detailed schedules showing the basis upon which its CLI premium (namely R 8.75 per R 1,000 charged in 2016) is calculated, and showing that Monarch does not make excessive proﬁts at this rate.
- The draft regulations seem to envisage a “one size ﬁts all” type of CLI for all customers at one price, and do not appear to allow the structuring of a different CLI package that is based on the customer’s speciﬁc requirements.
- “Deferred amount” is not clearly deﬁned and clarity is needed as to whether it is a decreasing balance amount or whether it is a ﬁxed amount calculated at the commencement of the credit agreement. Calculating a variable monthly insurance premium on a decreasing balance raises substantial practical diﬃculties, with regards to determining whether there is a default on the insurance premium component of the monthly instalment.
Monarch also forwarded the submissions to the FSB and to the Director of Insurance at National Treasury for their consideration. We have received no feedback on these submissions.
An update on the regulatory environment relating to insurance is included in the Chairman’s Report.