The Non-Bank Financial Institutions Regulatory Authority (NBFIRA) informs stakeholders that Bona Life Insurance (Pty) Ltd has been placed under statutory management effective from the 20thJanuary, 2020, due to a series of non-compliance issues.
Bona Life is a significant player in the life insurance sector based on total asset value, with more than 95% of its business in annuities. The Authority is keenly aware that the recent developments at Bona Life and subsequent media reports may cause some uncertainty and discomfort amongst its annuitants, insurance policyholders and other stakeholders.
“Following non-compliant transgressions by Bona Life, the Authority has placed the entity under statutory management which is the most appropriate enforcement measure relative to its nature of non-compliance issues. A statutory manager will effectively take over the management of the entity, ensuring the smooth continuation of its business operations and protect the interests of Bona Life’s clients in the interim”, said O.M. Ramasedi, Chief Executive Officer.
Ramasedi elaborated that one of the Authority’s core functions is to foster the safety and soundness of regulated entities with the aim of contributing toward the financial stability of the local financial services system.
“There are a series of interventions that the Authority undertakes before placing a regulated entity under statutory management and these interventions are corrective in nature. It is prudent that I clarify that the Authority’s role is to regulate and supervise non-bank financial institutions and ensure their compliance to financial services laws. This is distinct from the corporate governance role that an entity’s board plays in overseeing the daily operations and strategic direction of the regulated entity. The two must not be confused”. Said Ramasedi.
Bona Life’s financial position appears adequate to meet its financial obligations
Bona Life’s financial position as per the latest records available with NBFIRA based on value of assets at that time, indicate it’s ability to meet its financial obligations to its annuitants and policyholders. Insurers are required to hold the greater of the Minimum Capital Target (MCT) or Prescribed Capital Target (PCT).
Bona Life presently meets the MCT, which is the lowest amount of capital in absolute currency terms that an insurer is required to hold for licensing and ongoing operation.
On the other hand, with regard to the PCT the Authority has previously requested Bona Life to seek a capital injection in order to meet the PCT. The PCT is the amount of assets in excess of liabilities that an insurer must hold to cushion against negative business experience that could result in premiums and technical reserves not being sufficient to cover the losses suffered. PCT also serves as a regulatory warning system.
To date Bona Life has not secured the required additional capital to meet the PCT. However, in spite of this, Bona Life’s position as mentioned above appears to enable it to meet its financial obligations to its annuitants and policyholders. This may however not be sustainable in due course should the asset values change and the risk exposure continue to grow without a corresponding capital injection.
NBFIRA prioritises the protection of clients and their investments
Financial services laws for the Non-Bank Financial Institutions (NBFI) sector, seek to protect consumers in a variety of ways, one of which is to protect the integrity of investments made by NBFIs whether on their own behalf or on behalf of their clients. It is the accepted corporate governance norm that an entity’s board is the custodian of that entity’s investment policy and strategy and this is the case for Bona Life. In light of this, the Authority does not anticipate the resignation of the Bona Life CEO to have a direct bearing on the entity’s investments strategy.
Ramasedi stated that as the Authority regulates and supervises the NBFI sector, it seeks to foster amongst other functions stable and safe NBFI’s that are operated in a fair, orderly and efficient manner. It is in the pursuit of these objectives that the Authority’s supervisory and enforcement process involves coordinated and efficient interventions which are aligned to the risk-based supervisory approach used by the Authority. This is designed to ensure that the interventions are proportional to the breaches being addressed. Ramasedi added that the Authority adheres to confidentiality clauses and will not divulge details about Bona Life’s operations nor will it speculate about the future of Bona Life.
Ramasedi concluded by stating that Bona Life’s prevailing challenges must be interpreted within the right context and not as a continuation of previous non-compliance transgressions nor in relation to other NBFIs.
“The Authority takes advisory and enforcement action for non-compliance as and when they occur and ensures appropriate remedial action is taken. The Authority will keep stakeholders updated accordingly when deemed necessary,” said Ramasedi.