Comparative Aspects of the Legal Framework for the Control of the Insurance Business in Botswana and Swaziland by Peter Nanyenya Takirambudde Ir.troductiof! The imp::Jrtanceof the insurance device can hardly l::eo'Rr-errphasi7.ed. The insurance device is concerned with the sharinq of risks. Url:Bnization and industrialization in African countries have rrnlltiplied the risks to which individuals are exposed. The function of insurance is to adjust such risks. The insurance device operates by ccrnbining many risks intD a group. Those VIho are exposed tD the same risk (e.g. death, physical disability or property losses) enter into contracts wherel:y in return for a consideration known as the premium an insurer assumes the risk and corrpensates the insured if and when the insured eventoccurs. Conpensation is paid out of the fund (the in- surance fund) which is accumulated from the individual premiumpayments. The accumulation of a fund thus contril::utes tD the sharing of losses and the substitution of certainty for uncertainty. However, the certainty created throuoh the insurance mechanismmay l::e illusory if the insurance fund (or reserve) is not adequately protected. The imp::Jrtanceof this question in the African context has greatly increased in the ITDderntimes. Formerly few individual Africans were insured toth in respect of their lives and properties. But with url:Bnization and industrial" isation ITDreand ITDreAfricans are opting for insurance protection and inslrr- ance l::usiness is one of the fastest orowing industries in Africa. The increasing probability of an expansion of the insurance l::usiness makes it necessary to examine the existino legal arrangements for controlling the insurance l::usiness. The need fo:::-such an examination was eloquently eXrxes- sed l:y the rress which existed in Uganda s National Insurance Corporation as 1 a result of gross mismanaqementby a ward of directDrs appointed by Idi Amin. From the ~\;iI~dpoint of the basic function of insurance the mess was sO serious that the National Insurance Corporation was l:y the end of 1979 repor- ted to l::eunable to rreet obliqations in respect of life and other claims. In response to the need to maximise security regarding insurance as mechanism for providing protection against econowic -J11<1 social losses, the Governments of Botswana and Swaziland have enacted legislations to subject the insurance l::usiness to public supervision. The Botswana and Swaziland efforts have been geared to the prescription of govemrrentally imp::Jsedrequirements, guidelines and stcUldards of l::ehavior with a view to proITDtin",financial soundness in the insurance l::usiness. The Botswana and Swaziland effort is to make the insurer a rrore reliable instrument for the provision of certainty and secu- ri ty to the insuring public. The focus in the Botswana and Swaziland statutes is on organization and licensing and the rronitDring of ccmpanyoperations and solvency. This article will discuss the main provisions of the Botswana and Swaziland legislations and an atterrpt will be made to assess the extent to which they fulfil their protective role. It begins l:y analysing the mechanisms and areas 15 of legal control. Based on this discussion, the article concludes that though, in cc:rrparison to the Swaziland legislations the Botswana Act pro- vides a !lOre romprehensi~ framev.orkfor legal ron trol, its till contains a few looproles wuch srould invite legislative reronsideration. The Mechanismof Legal Control Legal control of the insurance rosiness in Botswana and Swaziland is the responsibili ty of three state agencies, namely the legislature, the courts and the Ministry of Finance and EconomicPlanning (hereinafter referred to as the Ministry) . The role of the legislatures in bot.h rountries is the enactment and arrend- !lent of insurance law therel:¥ providing the mechanismwithin which the courts and the Ministry operate in rontrolling the carrying on of insurance rosiness. The role of the courts in Botswanaand Swaziland is u..ofold. First, the coorts exercise rontrol I:¥ deciding cases involving conflict between cxxn- ponies and policy-holders. A judicial decision interpreting a policy pro- vision regulates the obligations of the insurer and detennines the right of the insured under that class of policies. Serond, the courts regulate the insurance rosiness therel:¥ protecting the policy-rolders I:¥ enforcing the criminal penalties provided for in the insurance statutes of both coun- tries. In Botswana the Minister of Finance and Eronanic Planning and the Registrar of Insurance are the principal state officials with the power to superintend the conduct of insurance rosiness. The permanent secretary for Finance and Econanic Planning is, for the time being, the Registrar. Unlike Botswana, Swaziland has no separate office of Registrar of Insurance and consequently the power to oversee the insurance rosiness is vested in the Minister and Pennanent Secretary of Finance and Eronomic Planning. The relevant state officials in both countries are given nurrerous powers and duties including: (a) the power to grant or cancel any licence (b) the right to receive annual statements relative to the financial rondi tion of the insurers. The powers granted to the Registrar of Insurance in Botswana v.ould, however, appear to be !lOre extensi~ than those given to the equivalent official in Swaziland. Fbr exanple, the Registrar of Insurance in Botswana is granted the power to investigate (as a carrnissioner under the Carrnissions of Inquiry Act) the affairs of any insurer v.txJ fails to romply with any of the provi- sions of the Insurance Act. Areas of Legal Control The areas of legal control in Botswana and Swazilcnd may be conveniently dis- cussed under the following heads:- (a) organization and licenSing (b) supervision of carpany operations 16 (c) supervision of financial solvency (d) amalgal11ation,transfer and liquidation of insurance rompanies (a) Organisation and Licensing There are tv.o legal regimes governing the organisation and licens- ing of insurance rorrpanies. First there is the general law applying to such entities in general. Second, there are the specific in- surance legislations which have been enacted in toth rountries to supplement such other general laws. The relevant legislations for this purpose are the 1979 Botswana Insurance Act and the 1973 Swa- ziland Control of Insurance Order (hereinafter referred to as the Botswana Act and the Swaziland Insurance Order respectively). Regarding the licensing of insurers, the tv.o rountries have aoop- ted different approaches. The Swaziland Insurance Order grants a virtual rronopoly in respect of insurance rosiness to the Royal Swaziland Insurance Corporation. Thus the Swaziland Insurance Order prohibits any person other than the Royal Swaziland Insuran- ce COrporation from carrying on insurance rosiness in Swaziland without be permission of the Minister. Permission to carry on insurance rosiness by any other person other than the Royal Swaziland Insurance COrporation may 1::egranted after an application by such person a'1d by any person wishing to act as an agent for the rollection of insurance premiumson J::ehalf of any insurer. The Minister, upon receipt of an aFfllication, may either grant or refuse it. The Insurance Order makes no special provision for a right of appeal against the Minister's decision. In contrast the Botswana Act adopts an open door policy and confers no rights of rronopoly in respect of insurance rosiness. The Botswana Act merely prohibits the carrying on of insurance rosi- ness by any person unless he is registered as an insurer. The Act provides that every application by an insurer for registration shall 1::emade to the Registrar MlO may grant such an application if the prospecti ve insured meets certain conditions. Both the BotswanaAct and the Swaziland Insurance Order p,escri1::e th the necessary qualifications for registration. The conditions set by the tv.o legislations are broadly similar, in that their goal is the guaranteeing of safety and financial solvency. The Swaziland Insurance Order requires proof of financial soundness, ability to carryon insurance rosiness and to keep proper and sufficient rerords and accounts. The BotswanaAct requires proof that: i. the rosiness will 1::econducted in acrordance with sound insur- ance principles ii. the necessary capital requirements have been canplied with iii. the margin of solvency is adequate iv. the applicant, 1::einga 1::odycorporate operating outside Botswana is duly constituted under the laws of the country in which the head office of the aFfllicant is situated. 17 unlike its Swaziland c:nmterpart, the Botswana Act makes special provisions for the right to appeal against the refusal to grant the application. Thus the Act provides that any person aggrievai l:¥ the decision of the Registrar not to grant an application for registration as an insurer may appeal to the Minister and if such an appeal is upheld the Registrar shall register the applicant as an insurez:. Since the Swaziland Insurance Order does not a:mtemp1ate the existence of a nu1tiplicity of insurers outside of the Ibyal Swaziland Insurance COrfX)ration, no additional provisions are made for the maintenance of a principal office in Swaziland. Given its open door fOlicy, the Botswana Act requires every registerErl in- surer to appoint a principal officer to maintain a principal office in Botswana and"to notify the Registrar in wri ting of the adkess of the principal office and the name of the principal officer. (b) Insurance CCtrpanyOperations i. Product Supervision To guarantee safety and adequate protection to the insuring public, insurance a:rcpanies, after having b3en duly licensed, need to l:.e subjected to oontinuing oversight. The broad fOlicy of such oversight v.ould be designed to secure fair treat:Irent of the insuring public. The ideal system of legal oontro1 v.ou1dbe the specification of minillu.un standard provisions to c:pvern all types of insurance fOlicies l:ut otherwise penni t insurers to use their OW"} fonnats so long as they are not less fa\OUrab1e to the insured or beneficia.,- ries than the minillu.un standards. The prOvisions reover,the examination carried out under S.31 of the Financial Institutions Act addresses itself to the question of insurance premiums. In the context of rroropoly control in Swaziland, the ab5ence of a system of statutory premium control may mean that the rates may be too high. \>i'hile the existence of real or actual competition in Botswana may guard against the tendency agaL.st rate excessiveness, it cannot by itself be a sufficient insurance against the rossi- bili ty of rate inadequacy. Therefore lx>th Botswana a11d Swaziland insurance companies may be issuing rolicies with premium rates which are too low for purposes of solvency. Th:ugh the regulations n>.QuId not be liable if the rosiness of the insurer 'tIere only life insurance rosiness, and Hi. shall not be applied directly or indirectly for any purposes other than thlse of the life insurance rosiness Secondly, the Botswana and SWaziland legislations address the question of capital requirements and reserves. '!he Botswana Act obliges every person carrying on insurance rosiness in Botswana to lffiintain in BOtswanaat all ti.1Tesa minimm: paid-up capital as lffiYbe prescribea. '!he Botswana Act at'(X)\'Jersthe Minister to !l'8keregulations prescribing margins of sol vency for any local insurer carrying on rosiness solely in Botswana, or carrying on insurance rosiness in and outside of Botswana, and for any external insurer carrying on insurance rosiness in Botswana. '!he margins of solvency lffiYbe prescribed in respect of:- i. life insurance only ii. any insurance including life insurance, and Hi. any insurance other than life insurance In connection with the ~r to prescribe margins of solvency, the Act further grants to the Minister the ~r to prescribe the metOOdof calculating the assets of an insurer for the purposes of conplying with the prescribed margin of solvency. The Minis- ter has prescribed the margins of solvency rot he is yet to pres- cribe the metlY;Jdologyfor calculating the assets. Furthernore, the Botswana Act grants the Minister the po'tIer to prescribe minimmt capital structures for persons carrying on bu- siness in Botswana. By virtue of the 1980 Insurance Regulations the Minister has prescribed miniIrom capital levels for stock insurance (P100,000.00) and IlUtual insurance (P100,000.00). '!he Swaziland COrporation Order does not contain explicit provisions in respect of mininum capital requirements, margins of solvency and methodology for calculating assets. '!he Swaziland COrporation Order contents itself with a requirement that the Corporation IlUlSt establish and lffiintain a general reserve fund within Swaziland which shall be invested with the awroval of the Minister. '!he Swaziland COrporation Order does, ho\\Ever, deal with the ques- tion of dividend policy \\hich is not addressed by the Botswana Act. '!he Swaziland COrporation Order provides that the Board of Directors shall annually determine \\hat prqx:>rtion of the profits of the Corporation shall, after !l'8king a provision for taxation be allocated to the general reserve fund, and thereafter \\hat pro- vision of such profits, if any, shall be distriroted to sharehol- ders, subject to the requiranent that no such distrirotlon shall be lffide unless the general reserve fund stands at an annmt which \>.QUId be deemed to be adequate in an insurance business of a size similar to the COrporation and under similar circumstances. 22 'Ihirdly, the Botswana and Swaziland leaislations seek to prarote financial soundness by making specific provisions regarding accounts, rr<:.:ordsand audits. The Botswana Act and the Swaziland Corporation Urder mandate the proper maintenance of accounts and records relative to the insurer's operations. The legislations provide that such accounts sJ .aD be audited by an independent auui:b.ilrapproved by the Registrar in Botswanaand the Minister in Swazila1d furnish the Minister with an annual report consisting of an audi ted statarent of accounts, a SUIlll'arystatanent of the Corpo- ration's financial position and profit and loss statanent indi- cating the results of its operations. The equivalent provisions in the Botswana Act are nore demanding. First the Act requires every registered insurer to prepare and fur:nish to the registrar within three rnJnths after the end of each financial Yf'ar of the insurance rosiness of the insurer the following cbcuments:- i. a certificate as to the solvency of the insurer signed by an actuary, ii. an audited balance sheet and profit and loss account, iii. a certified copy of the revenue account in respect of life insurance business, iv. a statement of life insurance rosiness, v. a certified copy of non-life insurance rosiness. In order be reinforce the foregoing general requirements regard- ing solvency, the legislations in Botswana and Swaziland require a periodic actuarial investigation by persons carrying on insu- rance rosiness. The Botswana legislation obligates a life insu- rer, at invervals of not rnJre than three years, be cause an actuarial investigation into the financial position of his rosi- ness, including a valuation of his liabilities by an actuary approved by the Registrar. The Swaziland equivalent provision en- conpasses all foIlllSof insurance rosiness other than life rot only requires a valuation of the liabilities in respect of long- term rosiness (life). Finally the relevant legislations in Botswana and Swaziland pro- rnJte the soundness of the insurance rosiness by providing mechan- isms for controlling the activities and operations of insurance brokers and agents. The Botswana Act provides that every regis- tered insurance broker shall keep records of the insurance trans- actions handled by him at his place of rosiness. The records shall contain particulars as to the names and addresses of insur- ed persons and insurers under coverage procured by the brokers, the nature of the coverage and rhe premiums collected. Every registered broker shall prepare an annual report containing the prescribed particulars for sul::roission to the Registrar. The equivalent Swaziland provisions contained in the control of Insurance Brokers and Agents Regulations are nore specific and conprehensive in so far as they inpose greater COntrol over the agents and brokers handling of insurance premiums. 23 To this end the SWaziland Regulations provide for the following: i. the depositing of premiums in a separate acoount styled "Insurance PremiumTrust Acoount" ii. the sul:Jnission of a copy of the banker's statenent or the Trust Acoount to the MinisterjPennanent Secretary if thE, broker is directed to do so and such statenent shall be sup- ported by a sUImary showing the total premiums collected, the aIlOunts paid to any insurance COlpanyor undenvriter with the separate totals of each carpany, and the anount of cx:mnission deducted by the insurance agent/broker. Hi. the sul:rni.ssion by the agent/broker to the Minister, every year, a copy of his annual balance sheet profit and loss and a report audited by a person approved by the Minister v.ho shall have the power to examine the daily accounts of the insurance broker/agent to call for and inspect all J:ooks, accounts , vouchers and securi ties. (d) Amalgamation, Transfer, Rehabilitation and Liquidation i. Amalgarpationand Transfer The amalgamation of one insurer (particularly a life insurer) with one or several other insurers may have serious adverse oonsequences for the insured for exarrple by affecting its margin of solvency. The Botswana Act recognises the serious iIrplications of the amalgarpation or transfer of life insu- rance and prohibits such amalgamation and transfer, as the case nay be, without the sanction of the Minister. 'Ibe Swaziland Insurance Order contains ro equivalent provisions regarding amalgamation or transfer. '!he legal position, therefore, appears to be that one life insurer can merge with arother or transfer its insurance business to another c0m- pany without the prior approval of the relevant "luthority in SWaziland. 'Ibe result of such an operation can be far reach- ing for the policy holder. In practice, ~ver, this aspect of the Swaziland legislation will be of marginal significance given the le chooses to undertake sum reconsideration, it should seek to do the following: (a) eJq)andp:rOduct supervision by including eJq)licit provisions to govern the setting of premiums and their handling by the agents and brokers. (b) establish nore stringent standards to control the behaviour and operations of insurance agents and brokers. (c) explicitly incorporate into the Insurance Act the technique of judicial managementas an alternative to outright liquidation. The Botswana Act provides administrative ~r to the Minister to prescribe the methodology for calculating the assets of the insurer. To date the Minister has apparently nade ro such prescriptions (reliance is placed on S.31 of the Financial Institutions Act technique of exarninations~, If the Minister chooses to exercise his po\(,ll€r,it is reo::mnendedthat the administrative guidelines for the valuation of assets should require insurers in Botswana to establish an off-settinq liability in the fom, of a special contingency reserve for revaluation of assets sum as l:uilqings and equip- trent instead of €!!ploying the book value (Le. original cost). The acbp- lion of the "cost" approach nay produce inaccurate results since the assets mayor nay rot actually be 'NOrththe original or current book value. Reliance on spurious a:rrputations will only militate against the public in- terest relative to the prarotion of financial soundness. 26 In the case of Swaziland, legislative refoI1ll 1NOUid seek to cater for the following: (a) enhanced supervision of the insurance contract by introducing techniques for controlling premiums and by expanding the scope of legal control through the acbption of Botswana approach of con- tractual mini.rn..nn standards and requirements; (b) expanded fi na1cial control of insurance ~ies similar to that embodied in the Botswana Act. In expan4ing financial control, the legislature should g:J beyond the exis- ting Botswana nodel and specify valuating standards for the assets of the insurers and explicitly prescribe the rnetln:blogy of current accounting for the preparation of financial statements; (c) prescribe standards of c:cxtpetencyfor brokers and agents; (d) incorporate the conpany law tedmique of judicial managarent into the principal insurance legislation. The adoption of legislative refoIlllS like th:lse suggested here, in concert with the exercise of administrative power available to the relevant autho- ri ties, will advance the efficiency of legal control of the insurance l:usi ~ ness in Botswana and Swaziland and reduce the chance that policy-holders will not be conpensated if and \