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Insurance and Pension Supervision in Swaziland (IMF)

Project Development Objective (PDO)

The main objective of this technical assistance is to assist the Registrar of Insurance and Retirement Funds (RIRF) in Swaziland to strengthen its capacity to regulate and supervise insurance companies and pension funds. 

Background

By 2010, the insurance and pension (retirement) funds in Swaziland were rapidly expanding and had become the largest segment of the financial system, comprising 10 operational insurance companies -- offering composite insurance, property and casualty, and life insurance products -- and 72 pension and provident fund managers. For example, the assets of pension and retirement funds grew by 14 percent between 2009 and 2010 and accounted for about 53.5 percent of GDP and about 44 percent of total financial system assets. 
While the insurance companies and pension funds were performing relatively well, they still faced a number of challenges, which limited their effectiveness in the financial system. These challenges, which largely stemmed from weaknesses in the operations of these institutions, weaknesses in the framework for regulating the industry, and the much broader problem of insufficient supervision of non-bank financial institutions (NBFIs), threatened to undermine not only the stability of the insurance and pension funds but the stability of the financial system as a whole. 
Given the significant regulatory and supervisory challenges that faced the insurance and pension sector, there are significant potential risks to the interests of insurance policy holders and pensioners and to the financial sector as a whole, which needed to be monitored closely. The rapid expansion of insurance business and pension fund assets and their close linkages with the banks warranted greater vigilance and improved supervision of these institutions if financial system stability was to be safeguarded. In this context, the authorities' pressing priority and focus on enhancing the supervision of the insurance and pensions sector was appropriate and timely given the size of this sector in the national economy, the increased vulnerabilities they posed, and the need to enhance the current capacity at the Registrar of Insurance and Retirement Funds (RIRF) to supervise this sector more effectively. The technical assistance was, therefore, critical for maintaining financial system stability in Swaziland by strengthening the supervision of the systemically important insurance companies and pension funds managers.

Activities / Output

The assistance focused on:  
1.  Modernizing the legal and regulatory framework for supervising the insurance and pension funds
     by finalizing the changes to the Insurance Act of 2005 and the Retirement Funds Act of 2005
     and taking into account prudential regulations consistent with the new Financial Services
     Regulatory Authority (FSRA) Act; 
2.  Strengthening the operational framework for supervision by making the move to a risk-based
     supervisory (RBS) approach and developing risk-based capital adequacy requirements; and 
3.  Building the capacity of the staff of the RIRF to supervise the insurance and pension sector in
     accordance with the RBS and with international best practices and standards and assisting these
     staff with the transition to the FSRA when it becomes operational.

Expected Outcomes

The short- and medium-term outcomes of this project include:
1.  The RIRF has an updated prudential framework for supervising the insurance and pension funds,
     including risk-based supervision
2.  The RIRF is implementing supervision of insurance companies and pension funds under the
     updated framework.
3.  Insurance and pensions sectors operate under a modernized regulatory framework
4.  Effective operational guidelines for the risk-based supervision of insurance companies and
     pension funds managers.
5.  A fully-integrated manual for on-site and off-site risk-based supervision of insurance companies
     and pension funds managers in place. 
6.  A capacity building program for supervision focused on the risk-based principle in place.
7.  A sufficient cadre of staff is fully trained in various areas (examination planning, risk-based
     supervision, internal control and external audit evaluation, accounting principles and standards,
     financial analysis, risk management process, financial management tools, and report
     preparation), and received practical field guidance on application of risk-based supervision
     skills as well as hand-on practice on off-site supervision.