Insurance (Minimum Capital and Solvency Requirements for Life Insurers) Directive 2025

GOVERNMENT NOTICE NO. 94 INSURANCE ACT (No. 6 of 2025) INSURANCE (MINIMUM CAPITAL AND SOLVENCY REQUIREMENTS FOR LIFE INSURERS) DIRECTIVE, 2025 IN EXERCISE of the powers conferred by section 110 (2) of the Insurance Act, 2025, I, DR MACDONALD MAFUTA MWALE, Registrar of Financial Institutions, issue the following Directive— 1.

This Directive may be cited as the Insurance (Minimum Capital and Solvency Requirements for Life Insurers) Directive, 2025. 2.

This Directive shall apply to life insurers. 3.

In this Directive, unless the context otherwise requires— “actuarial professional standards” means actuarial professional standards of South Africa, Canada, Australia and United Kingdom or any other country as may be approved by the Registrar; “asset risk charge” means a charge levied on an asset that relates to adverse movement in the value of the asset, particularly in a shock situation, and to loss on the materialisation of credit and any other risk; “board” means the board of directors of a life insurer;

Short title Application Interpretation

“core capital” means capital of a life insurer determined in accordance with paragraph 7; “inadmissible asset” means an asset that is inadmissible for purposes of calculating the solvency position of a life insurer; “infrastructure asset” means a physical asset and facility, system and network that provides or supports the provision of an essential public service; “infrastructure corporate entity” has the meaning ascribed thereto under the Financial Services (Investment Management of Life Insurers and Pension Funds) Directive, 2025; “infrastructure project entity” has the meaning ascribed thereto under the Financial Services (Investment Management of Life Insurers and Pension Funds) Directive, 2025; “insurance risk charge” means a charge levied on the net sum at risk that relates to the risk of adverse impact on an asset due to movement in mortality, morbidity, longevity, servicing expense and any other insurance risk; “liability risk charge” means a charge levied on policy liability, and includes— (a) risk of loss resulting from inadequate or failed internal process, personnel, or external event; or (b) risk associated with a guarantee incorporated in a product; “net sum at risk” means the total potential death benefit less expected reinsurance recovery and technical provision; “policy liability” means the amount calculated in accordance with the Insurance (Determination of Policy Liabilities of Life Insurers), Directive, 2018 and applicable International Financial Reporting Standards; “professional valuer” means a valuer registered as such under the Property Valuation Act; “qualifying infrastructure asset” has the meaning ascribed thereto under the Financial Services (Investment Management of Life Insurers and Pension Funds) Directive, 2025. “revaluation reserve” means the annualised gain or loss arising from the revaluation of a fixed or tangible asset to its fair value, as determined by a professional valuer in accordance with International Financial Reporting Standards; “solvency capital” means the required capital for a life insurer to meet solvency requirements prescribed under this Directive; “solvency ratio” means solvency capital divided by the solvency requirement expressed as a percentage; “solvency requirement” means the total of the various risk charges determined in accordance with this Directive; and 576 12th September, 2025 G.N. 93/2025 G.N. 93/2025 G.N. 61/2018 No. 26 of 2024 G.N 93/2025

“technical provision” means the amount calculated in accordance with actuarial professional standards that is set aside by the life insurer to fulfil its short-term obligations, and includes, among other provisions— (a) incurred but not reported claims; (b) outstanding claim reserves; and (c) other short-term liabilities. 4. The objectives of this Directive are to— (a) protect the interests of policy holders and beneficiaries by requiring a life insurer to hold sufficient assets to meet its obligations; (b) ensure that a life insurer has sufficient capital to absorb losses arising from current and future uncertainties associated with life insurance activities and to provide for supervisory intervention; (c) raise the standard of governance and discipline by board and management of a life insurer by setting out expectations or strategic and governance activities with respect to capital management, conservative risk taking, business mix and the relative complexity and correlation of risks assumed; and (d) implement a framework of prudential regulation of the life insurance sector that supports financial stability objectives. 5.—(1) A board shall put in place appropriate mechanisms to ensure— (a) prudent management of capital to support current and future operations, even under adverse economic conditions; (b) maintenance of adequate level and quality of capital appropriate to the size, nature, complexity and risk profile of the insurer; and (c) sustenance of capital and solvency requirements prescribed under this Directive on a continuous basis. (2) The board shall develop a comprehensive internal capital adequacy and solvency assessment process commensurate with its risk profile. (3) The board shall ensure that an actuary of the life insurer, annually— (a) determines the solvency of the life insurer; and (b) certifies the solvency status of the life insurer and confirm that the solvency calculations were performed in accordance with actuarial professional standards. (4) The board shall put in place mechanisms to ensure that the actuary of the insurer provides appropriate instructions to enable the insurer fulfil the reporting obligation under paragraph 14. 6.—(1) The start-up capital requirement for a life insurer who intends to carry on— (a) all classes of life insurance business shall be K1,800,000,000; and (b) one class of life insurance business shall be K800,000,000. 12th September, 2025 577 Objectives of Directive Obligations of a board Minimum capital and solvency requirements

(2) The amounts prescribed under subparagraph (1) shall be the regulatory core capital requirements for the conduct of life insurance business in each specified class of life insurance business. (3) A life insurer shall maintain a minimum solvency ratio of one hundred percent. (4) The Registrar may, by direction in writing, prescribe a higher core capital or solvency ratio for a life insurer. 7. A life insurer shall determine its core capital in the following manner— The sum of— (a) paid-up capital; (b) share premium; (c) retained earnings; (d) other reserves that are created from appropriation of retained earnings, excluding revaluation of property, plant and equipment; and (e) eighty percent of cumulative after-tax profits in the current year￾to-date or one hundred percent of losses, less the following items— (a) goodwill and intangible assets; (b) equity investments in an associate or subsidiary; (c) subordinated loans to an associate or subsidiary; (d) allowance for any dividend declared or repayment of capital or subordinated debt scheduled within one year; and (e) revaluation reserves from investments in property. 8.—(1) A life insurer shall calculate the solvency capital as the value of its adjusted assets, less the following liabilities— (a) policy; (b) technical; and (c) other liabilities. (2) For purposes of this paragraph “adjusted assets” means the total assets less any inadmissible assets listed in Table 1 of the First Schedule. 9.—(1) A life insurer shall calculate its solvency requirement as the sum of the following components— (a) asset risk charge; (b) insurance risk charge; (c) liability risk charge; and (d) concentration risk charge. (2) The insurer shall calculate the asset risk charge by applying— 578 12th September, 2025 Determination of core capital Calculation of solvency capital Calculation of solvency requirement

(a) to each asset class, the risk factors set out in Table 2 of the First Schedule; and (b) a risk factor of 5.0 percent on a benefit explicitly linked to the face value of an asset, or a unit of an asset portfolio: Provided the unit and asset linked to the benefit is held by the life insurer exclusively for the purpose of providing the benefit. (3) The insurer shall determine the— (a) insurance risk charge as 0.5 percent of the net sum at risk; (b) liability risk charge as 3.0 percent of policy liabilities; and (c) concentration risk charge by applying a concentration risk factor of 100 percent to the value of assets that exceed the investment concentration limit for that asset class as provided in the Financial Services (Investment Management of Life Insurers and Pension Funds) Directive, 2025. (4) In addition to the risk charges in subparagraph (1), the life insurer shall establish other appropriate reserves to cover the wider range of risks faced by the life insurer. 10. Where the Registrar forms an opinion that the— (a) risk profile of a life insurer is increasing; or (b) life insurer has used inappropriate judgement with respect to any valuation or solvency calculation, the Registrar may require the insurer to adjust any aspect of the solvency calculation. 11.—(1) A life insurer shall not declare or pay dividends if declaration or payment of the dividends will result in the insurer breaching the solvency ratio prescribed under paragraph 6(3). (2) A life insurer who contravenes subparagraph (1) shall be liable to an administrative penalty. 12.—(1) A board shall notify the Registrar, as soon as practicable, of— (a) any breach of the solvency position of the life insurer; or (b) potential breach of the solvency position of the insurer. (2) The notification under subparagraph (1) shall specify remedial actions taken or planned to be taken to address the situation and the timeframe for implementation of the actions. 13. The Registrar shall employ corresponding corrective actions as provided in the Second Schedule in dealing with solvency matters. 14.—(1) A life insurer shall submit quarterly capital adequacy and solvency reports to the Registrar in accordance with the Instructions For Completion of Call Reports Manual. 12th September, 2025 579 G.N. 93/2025 Adjustment of solvency calculation Limitation on declaration and payment of dividends Board to notify breach or potential breach to Registrar Corrective actions Submission of quarterly reports

(2) The Registrar may impose an administrative penalty on a life insurer who contravenes subparagraph (1). 15.—(1) Where a life insurer fails to meet the core capital requirement prescribed under this Directive, shareholders of the insurer shall, within the timeframe prescribed by the Registrar, inject additional capital as may be required to meet the prescribed core capital. (2) Where a life insurer fails to maintain the minimum solvency ratio, the Registrar shall employ supervisory actions as prescribed in the Second Schedule. (3) Where the Registrar determines that a life insurer has failed to meet the core capital or solvency ratio prescribed under this Directive, the Registrar may impose an administrative penalty or enforcement action on the insurer. 16. A life insurer licensed to operate before the commencement of this Directive shall comply with the core capital and solvency requirements prescribed herein within eighteen months of the Directive coming into force. 17. The Insurance (Minimum Capital and Solvency Requirements for Life Insurers) Directive, 2017 is revoked. FIRST SCHEDULE Table 1 – Inadmissible Assets (para. 8(2)) 1 Goodwill and other intangibles 2 Proprietary software 3 Shareholder equity investments in, and subordinated loans to, associates, subsidiaries and affiliates 4 Asset for insurance acquisition cash flows 5 Loan to or amount receivable from an associate or related party 6 Advances to insurance agents and directors 7 Loans overdue for more than 180 days 8 Insurance contract assets 9 Deferred and other taxes 10 Amounts secured or pledged on any asset 11 Prepaid expenses 580 12th September, 2025 Contravention, remedial action and penalty Transitional arrangements Revocation G.N. 41/2017

Table 2 – Asset Risk Factors (para. 9(2)) Asset class Asset Risk Factor Cash and cash equivalents 0% Government securities 0% Deposit in financial institutions 0% Listed semi-government securities 5% Mortgages on real estate 5% Listed equities 5% Listed corporate bonds 5% Offshore investments- listed equities or bonds 10% Aggregate investment of less than 60 percent in a qualifying infrastructure asset 10% Asset backed securities (including commercial loans, money market securities and infrastructure bonds) 15% Collective investment Schemes 10% Investments property - owner occupied 15% Investment property- Direct investment 20% Loans less than 180 days 20% Offshore investments-unlisted equity 20% Unlisted securities 20% Reinsurance contract assets held 20% Aggregate investment of more than 30 percent equity holding in listed companies. 20% Aggregate investment of more than 30 percent equity holding in unlisted companies. 25% Aggregate investment of equal to or more than 60 percent equity holding in a qualifying infrastructure asset 25% Any other assets 30% SECOND SCHEDULE (para. 13) SOLVENCY BUFFERS AND CORRECTIVE ACTIONS Level Solvency Ratio Expected Supervisory Response Strong ≥120% Routine monitoring 12th September, 2025 581

• Place on Watch List • Meeting with Acceptable ≥110% but <120% Management • Restructure Balance Sheet • Supervisory letter Needs Improvement ≥100% but <110% • Capital Injection • Meeting with Board • Suspend licence • Statutory management Weak <100% • Revoke licence • Winding Up Note:

1. The Registrar may implement any or all of the corresponding supervisory actions.
2. The implementation of the actions may be in any sequence as the Registrar determines appropriate. Made this 10th day of September, 2025. DR. M.M. MWALE (FILE REF. NO. FIN/PFSPD/02/03) Registrar of Financial Institutions

582 12th September, 2025 Level Solvency Ratio Expected Supervisory Response