Draft legislation would lead to less South African cell structures: Clyde & Co

Draft legislation in South Africa that will outline the required governance and risk management arrangements for captive cell agreements, will lead to a reduction in existing cell owners, according to the law firm, Clyde & Co.

Clyde said it was concerned about the impact of the draft legislation, published for consultation on July 20, 2018, which sets limitations regarding who can be cell owners, particularly where a cell owner is an intermediary or an associate of an intermediary.

Some cell owners will be forced to cease operating because they do not meet the required criteria, said Clyde. It warned others will close due to the increased regulatory supervisory requirements.

Clyde warned cell captive insurers will also be affected. “They are accountable for the financial soundness and regulatory compliance of each cell structure that they put in place. The financial soundness obligations are similar to those stated under Solvency II and will undoubtedly place new pressures on existing cell captive insurers.” it said.

The South African Insurance Act, 2017 defined cell captive insurers and stipulates that only cell captive insurers licensed under the act may conduct insurance business through cell structures.