SOME CLARITY ON THE ACCRUAL OF LIVING ANNUITIES AT DEATH OR DIVORCE CM v EM (1086/2018) [2020] ZASCA 48; [2020] 3 All SA 1 (SCA); 2020 (5) SA 49 (SCA) (5 May 2020)

A conventional life annuity is a contract in terms whereof an annuity underwriter guarantees a periodical payment to an insured in exchange for an initial non-refundable premium. The insurer pools all the annuity premiums together and assumes both the investment performance and the mortality risk by way of actuarial comparisons. The annuitant’s income is guaranteed for life or for a minimum period.Living annuities on the other hand are regulated by the Long-Term Insurance Act 52 of 1998 and are market-linked investments (with no income guarantee) in respect of which the annuitant annually chooses the drawdown rate – currently between 2.5 and 17.5 per cent per annum (compare Regulations in terms of s 36 of the Pensions Act 24 of 1956 and s 106(1)(a) read with s 108(1) of the Financial Sector Regulation Act 9 of 2017.) When an annuitant dies, the death benefit is payable to a nominated beneficiary or the estate of the insured. A pension-interest benefit is an asset for the purposes of the division of an estate at divorce, and includes both pension and provident funds. Living annuities, however, do not fall within the definition of “pension interest” as defined in s 1 of the Divorce Act.In CM v EM ((1086/2018) [2020] ZASCA 48; [2020] 3 All SA 1 (SCA); 2020 (5) SA 49 (SCA) (5 May 2020)), the Supreme Court of Appeal, in an appeal from the full court of the Gauteng Division of the High Court, sitting as court of appeal, had the opportunity to determine where the ownership of capital invested in the form of a living annuity vests, as well as whether the value of an annuitant spouse’s right to future annuity payments is an asset in his or her estate and therefore subject to accrual. Accrual in respect of an estate is the amount by which the net value of the estate at the dissolution of a marriage exceeds the net value of that estate at the commencement of the marriage. At the dissolution of a marriage owing to death and subject to the accrual system, the spouse whose estate shows no accrual, or a smaller accrual than the estate of the other spouse, has a claim against the other spouse or his or her deceased estate.It is submitted that some implications of the accrual dispensation, particularly within the context of certain pension and financial products, are still in their discovery phase, nearly 40 years after their introduction. In the absence of any reference to a living annuity in an antenuptial contract, the question was always whether such an investment is subject to the accrual system at divorce or death. In the context of a life assurance policy, the surrender value of the policy was taken into account in the event of divorce, but in the event of death, the question was whether, for accrual purposes, the factor taken into account should be the surrender value or the policy proceeds. As only assets that form part of the estate of a spouse can be considered for accrual purposes, the very nature of a living annuity had to be investigated in the matter of CM v EM (supra). This case was an application for special leave to appeal from the full court in the matter of Emilio Pietro Valfredo Montanari v Charmaine Helen Montanari (Montanari v Montanari).

REGULISANjE POSLOVA POSREDOVANjA U OSIGURANjU

In modern practice, concluding insurance contracts is mostly done through insurance brokers-intermediaries. Today, the term insurance insurance brokerage, in a broader sense, means the activity of insurance mediation, which is professionally performed by legal and natural persons who are called insurance brokers. The subject of the research also consists in the answer to the disputable questions regarding the insurance brokerage in order to put a light on significant segments of the reasons for surrender, as well as to propose their further improvements. In the following text, having in mind the complexity of the topic, and the limited scope of work, a review will be made of the main specifics in both domestic and comparative law.

SO MUCH OWED BY SO MANY TO SO FEW: HOW THE FINANCIAL ADVISORY AND INTERMEDIARIES ACT 37 OF 2002 ADDRESSES “CONFLICT OF INTEREST”

Winston Churchill delivered his famous speech entitled “The Few” after the Battle of Britain of 1940. This historical conflict saw 2353 young men from Great Britain and 574 from overseas, pilots and other aircrew fly at least one authorized operational sortie with an eligible unit of the Royal Air Force or Fleet Air Arm during the period 10 July to 31 October 1940. Although conflict on the scale of a world war cannot be equated to conflicts of interest between financial-services providers (FSPs), representatives and clients, the potential damage that can be caused by intermediaries and representatives who act in their own interest can be devastating to that particular client. In addition, it also has wider implications for the financial-services industry. It is consequently up to the FinancialServices Board (FSB) to ensure that conflict of interest between intermediaries and representatives and clients are managed in anacceptable way. As a matter of background: The FSB was established by the Financial Services Board Act (97 of 1990) and has as its main objective the supervision of financial institutions in order to achieve maximum consumer protection. As such, the FSB acts as statutory registrar of a variety of financial institutions. Hattingh and Millard explain that the FSB is currently in control of the Collective Investment Schemes Control Act, the Financial Services Board Act, Financial Institutions (Protection of Funds) Act , Financial Supervision of the Road Accident Fund Act, Friendly Societies Act, Inspection of Financial Institutions Act, Long-term Insurance Act, Pension Funds Act, Short-term Insurance Act, Supervision of the Financial Institutions Rationalisation Act, the Securities Services Act, and the Financial Advisory and Intermediaries Act. The FSB drafted the FAIS Act with the aim of creating a regulatory structure which regulates the way in which intermediary and advisory services in respect of financial products are rendered. Conflict of interests is but one of the issues that arise between intermediaries, advisors, financial-services providers and clients and the purpose of this note is to analyse a number of key issues introduced by Board Notice 58 of 19 April 2010. This note sets out to explain what the position was before the introduction of the new rules on the management of conflict of interest. It then proceeds to discuss the new definitions that now form part of the legislation. In addition, it discusses the detailed provisions pertaining to conflict of interest and explains what a conflict-of-interest management policy entails. Finally, the note evaluates the new regulations and asks whether they have thepotential to eliminate unfair dealings by advisors and intermediaries and thereby enhancing the professionalism of those who work in the financial-services industry.

CURE OR CURSE? REGULATIONS ON THE DEMARCATION BETWEEN HEALTH-INSURANCE POLICIES AND MEDICAL SCHEMES

In South Africa, private insurance policies are regulated by the Long-term Insurance Act and the Short-term Insurance Act. Medical schemes fall under the Medical Schemes Act (131 of 1998) and yet, despite the fact that there are three dedicated statutes that deal with the risks relating to ill health, it seems that the distinction between insurance products and medical-scheme benefits isnot so clear. On 2 March 2012 National Treasury published the proposed amendment of regulations made under section 72 of the LTIA and under section 70 of the STIA. These are jointly referred to as the “Demarcation Regulations”. This note provides an overview of these proposals against the background of the difference between insurance business and medical-schemes business. In addition, itinvestigates the policy principles that informed the Demarcation Regulations and comments on the impact of those on the insurance industry and on medical schemes.

Socioeconomic status and the likelihood of informal care provision in Japan: An analysis considering survival probability of care recipients

Studies show that the burden of caregiving tends to fall on individuals of low socioeconomic status (SES); however, the association between SES and the likelihood of caregiving has not yet been established. We studied the relationship between SES and the likelihood of adults providing long-term care for their parents in Japan, where compulsory public long-term insurance has been implemented. We used the following six comprehensive measures of SES for the analysis: income, financial assets, expenditure, living conditions, housing conditions, and education. We found that for some SES measures the probability of care provision for parents was greater in higher SES categories than in the lowest category, although the results were not systematically related to the order of SES categories or consistent across SES measures. The results did not change even after the difference in the probability of parents’ survival according to SES was considered. Overall, we did not find evidence that individuals with lower SES were more likely to provide care to parents than higher-SES individuals. Although a negative association between SES and care burden has been repeatedly reported in terms of care intensity, the caregiving decision could be different in relation to SES. Further research is necessary to generalize the results.

Obligatory Insurance of Military Servicemen

The author considers in this article the most important element of social protection of military man — compulsory insurance. The army is the mainstay of our country in an unstable political system. People are the basis of any army — they need high-quality social protection. One of the central components of a perfectly functioning social protection of military man is a statutory public military man’s liability insurance. The article analyzes the term ‘insurance’, considers the parties to the contract of statutory public military man’s life and health insurance. The author highlights that the system of a statutory public military man’s liability insurance in our country has certain positive features. However, this system cannot be called flawless. The system of statutory public military man’s life and health insurance characterized by a number of negative aspects pointed out by the author. At the end of the article, a number of suggestions for improving this system of insurance are provided.

An investigation of an overlap in penalty calculations: profit commission in reinsurance treaties versus profit commission in binder agreements for underwriting managers

Reinsurance treaties and binder agreements regulate penalty calculations in the event the insurer and underwriting manager is unprofitable and/or profitable. The formulae and different premium terminologies are investigated to calculate loss ratios and whether there is an overlap in sliding scale penalty calculations/formulae relevant to loss ratios of treaties and binder agreements. Treaties and binder agreements generally use sliding scale penalties to calculate reinsurance commission or sharing in the insurer’s profits by an underwriting manager and is in conflict with the Conventional Penalties Act 15 of 1962 of South Africa. The Conventional Penalties Act 15 of 1962 must guide reinsurers and insurers in their profit calculations formulae to prevent any form of sliding scale penalties relevant to loss ratios. It is therefore suggested that a standard template of profit calculations and terminologies should be used in binder agreements to prevent different calculations of loss ratios in the short term insurance landscape. This will guide the Financial Conduct Authority Services (previously the Financial Services Board) to understand loss ratios of affordable short term financial products when compared to loss ratios of other short term financial products in South Africa. Keywords: Reinsurance commission; loss ratio; risk premium; penalties; underwriting manager

Enterprise Risk Management Maturity Levels of the Insurance Industry in Botswana

Enterprise Risk Management (ERM) has become a necessity in the financial sector to fulfil stakeholder expectations. Studies confirm that ERM impacts positively on the performance of firms. The main objective of the study was to assess ERM maturity levels of the insurance industry in Botswana. This was achieved through first designing a framework to measure enterprise risk management maturity levels. The ERMMF incorporated elements from COSO’s ERM framework and the AON risk maturity model obtained through literature review. Data were sourced from four strata; 9 long term insurance companies (15 respondents), 11 short-term insurance companies (19 respondents), 3 reinsurers (5 respondents), and 44 brokerages (75 respondents). While all organisations in the population were used, a sample of 114 out of possible 134 respondents was used. Data were analysed using SPSS version 16. The findings revealed that the insurance industry in Botswana had somewhat implemented ERM. It is therefore recommended that the insurance industry in Botswana should take ERM as a continuous process for growth in ERM maturity levels as such an improvement is highly likely to enhance their performance.