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Conducting Insurance Business in South Africa: Legal Framework and Offshore Placement

ARTICLE BY

  • Tracy Mclaughlin
  • FIA Non-Life Technical Sub-Committee Member
  • Regional Managing Director - GIB Insurance Brokers

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South Africa’s insurance industry operates within a robust legal and regulatory framework designed to protect consumers and ensure market integrity.

Legal Framework

Insurance business is regulated primarily in terms of the following legislation:

  • Insurance Act, 2017 Establishes prudential standards and replaces parts of the Long-Term and Short-Term Insurance Acts.
  • Financial Sector Regulation Act, 2017 Creates the Prudential Authority (PA) and the Financial Sector Conduct Authority (FSCA) as key regulators.
  • FAIS Act (Financial Advisory and Intermediary Services Act) Governs the conduct of financial advisors and intermediaries.

Who May Conduct Insurance Business?

Only licensed entities are legally permitted to underwrite insurance or issue policies in South Africa.

Licensed Insurers

  • Registered with the Prudential Authority
  • Must meet capital, governance, and reporting requirements
  • May operate as life insurers, non-life (short-term) insurers, microinsurers, or reinsurers

Lloyd’s Underwriters

  • May operate in South Africa only through approved intermediaries or licensed branches
  • Must comply with local licensing and conduct legislation

Foreign Insurers (Non-Admitted)

  • May not underwrite South African risks directly unless licensed
  • Offshore placement is permitted only under strict conditions, including:
    • No suitable local cover available
    • Approval via the OSIP or MPI process under Section 8(2)(d) of the Short-Term Insurance Act

Offshore Insurance Placement: What It Is and When to Use It

Offshore placement refers to obtaining insurance from a foreign insurer not licensed in South Africa, subject to regulatory approval.

When Is Offshore Placement Appropriate?

Businesses may consider offshore placement when:

  • Local market limitations prevent adequate coverage
  • Global operations or foreign assets require coverage Currency hedging is needed to mitigate rand volatility
  • Specialised risks (e.g. marine, aviation, cyber) are not covered locally
  • International contracts require insurance from globally recognised insurers

Regulatory Pathways for Offshore Placement

Offshore placements are governed by Section 8(2)(d) of the Short-Term Insurance Act. There are two approval routes:

1. OSIP Process (Offshore Insurance Placement)

Used when a Financial Services Provider (FSP) assists the policyholder.

Requirements:

  • Submit application via the OSIP platform
  • Upload:
    • The completed application form
    • Supporting documents per Directive 149.A.iv
    • A declaration from the policyholder acknowledging limited protections
  • Pay the processing fee (e.g., R1,355)

2. MPI Process

When the policyholder approaches a bank directly, without an intermediary the process is as follows:

Requirements:

  • The bank’s Exchange Control Department submits the application
  • Similar documentation is required, but the process is managed internally

Application Criteria

To gain approval, the application must demonstrate:

  • Necessity: Offshore placement is essential due to lack of local cover
  • Market testing: Evidence that the South African market (including Lloyd’s) was explored
  • Insurer details: Information about the foreign insurer and proposed coverage
  • Risk acknowledgment: Signed declaration from the policyholder
  • Hold-covered agreement: To ensure interim protection (if applicable).

Post-Approval Responsibilities

Once approved, the intermediary must submit post-approval documentation within 30 days of cover inception, including:

  • Final policy wording
  • Premium breakdown
  • Insurer confirmation

Accessing the London Market: A Strategic Option Within the Regulatory Framework

The London Market, including Lloyd’s of London, is a global insurance hub offering specialist underwriting capacity. Importantly, Lloyd’s is not considered offshore in the regulatory sense if accessed through licensed South African intermediaries.

Why Use London Market Capacity?

  • Specialist expertise for complex risks
  • Global underwriting capacity for large exposures
  • Currency stability (e.g. USD, GBP)
  • International credibility for cross-border contracts

How to Access the London Market

  1. Engage a Specialist Broker Work with a South African broker who is a Lloyd’s Coverholder or has relationships with Lloyd’s brokers.
  2. Use the Lloyd’s Platform Brokers submit risks to Lloyd’s syndicates—groups of underwriters specialising in global risks.
  3. Comply with Local Regulations If Lloyd’s capacity is accessed via a foreign insurer (not through a licensed intermediary), the OSIP or MPI process applies.
  4. Consider Local Partnerships Some South African insurers (e.g., Santam) have launched Lloyd’s syndicates, offering local access to global capacity.

Who Can Place Business with Lloyd’s?

To place business directly with Lloyd’s, an intermediary must be:

  • A registered Financial Services Provider (FSP) under the FAIS Act
  • Approved by Lloyd’s South Africa as an Open Market Correspondent (OMC) or operate as a Coverholder
  • Sponsored by a Lloyd’s broker who submits the application for OMC status

Key Considerations

  • Regulatory scrutiny is high—ensure full transparency and documentation
  • Policyholder protection is limited offshore—clients must understand the risks
  • Exchange control compliance is essential, especially for premium payments and claims

Final Thoughts

Offshore placement and London Market access are distinct but complementary tools.

Offshore placement is a regulated exception used when local options are exhausted. London Market access, when done through licensed channels, offers South African businesses world-class coverage without breaching regulatory boundaries.

By understanding the difference and adhering to the correct process, brokers and clients can unlock global insurance solutions while maintaining compliance.

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