Financial Management of Parliament Amendment Bill & Review of Money Bills Amendment Procedure and Related Matters Act: Legal Advisor briefings; Briefing by South African Special Risk Insurance Association

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Finance Standing Committee

14 July 2014
Chairperson: Mr Y Carrim (ANC)
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Meeting Summary

The Committee heard briefings by the Senior Parliamentary Legal Advisor on the Financial Management of Parliament Amendment Bill and on the review of the Money Bills Amendment Procedure and Related Matters Act.  It was also by the South African Special Risk Insurance Association (SASRIA).
 
Financial Management of Parliament Amendment Bill (FMPA)
The briefing included a background history to date of the FMPA Bill for the benefit of new Members of the Committee. The background covered the submissions received from Treasury and the Auditor General. The bill was before the Committee because the NCOP had drafted an amendment to the bill which had been referred back to the National Assembly. The amendment required that provincial legislation be recognised in the FMPA, and be applicable to it.

The legal advisor touched on other existing amendments. These were regarding:
The oversight mechanism: all members would now be eligible to serve on the oversight mechanism;
Parliament would approve regulations which would also be applicable to provincial legislations;
The draft strategic plan, the draft annual performance plan and the budget and adjustments budget would be referred to the oversight mechanism as additional functions;
The role of the accounting officer had been clarified;
Mention of provinces had been taken out of the PFMA, to avoid duplication.

Members asked that the meeting’s mandate be broadened beyond the NCOP amendment to look at the DA’s concerns over issues of accountability, oversight and the executive authority in the bill. Members said mention had been made that the amendments had been in line with recognised parliaments. What were the other parliaments? Members said the bill needed more research, the main issue being the executive authority could not be part of the oversight mechanism. They asked what the status of the bill was, and it was asserted that the bill was bad and that the fifth Parliament offered an opportunity to correct it.  Members wanted to know what was fundamentally flawed in the amendment, and what would happen were it not passed.

The Committee adopted the FMPA [B1B-2014] bill.

Money Bills Amendment Procedure and Related Matters Act
The legal advisor said there were some matters for the Committee to consider.
The NA had referred issues regarding time frames and sequences;
The adjustment budget was a section 76 bill, which meant it had to be done separately and thus required an amendment to the Act;
The norms and standards of provincial legislation, which leant too far into the provincial legislatures’ right to pass their own Money Bills Procedures Act, as set out in section 123;
The four finance committees’ management role functions needed to be discussed;
The need to report to the House through an executive authority;
The FMPA needed to be incorporated into the financial management of the budget office.

SA Special Risks Insurance Association (SASRIA)
SASRIA gave a brief history of the company, its business model, products, the role it played in the economy, and how it was aligned to the National Development Plan. It covered a financial overview and the changing environment it operated in, as well as the company’s future strategy

Members asked if SASRIA had reinsurance since the state was no longer the underwriter. Members asked what the impact of a “terrorism strike” on the economy would be.   How was risk covered in the management strategy?  What was the SASRIA client profile? Who were the major clients?  Who were their brokers? Where were the students SASRIA had supported?  Did municipalities take out SASRIA insurance?  Were towns and consumers covered when power cuts occurred?  How many councillors had taken up the SASRIA product?  Was land invasion covered by SASRIA?
 

Meeting report

Financial Management of Parliament Amendment Bill
Adv Frank Jenkins, Senior Legal Advisor in the Parliamentary Law Office, said his presentation would provide the background history to date of the Financial Management of Parliament Amendment Bill (FMPA), including why the National Council of Provinces (NCOP) had referred the bill back to the National Assembly (NA) with an amendment.

Mr D Ross (DA) asked that the meeting’s mandate be broadened beyond the NCOP amendment to look at the DA’s concerns over issues of accountability, oversight and the executive authority in the bill.

Adv Jenkins said that public hearings on the bill were held from which they had received submissions, including from the National Treasury, the Auditor General, the Western Cape Provincial Treasury and Legislature. The Committee had introduced a draft bill.  The NCOP had passed an amendment to the bill, which was referred back to the NA, but the bill had lapsed with the ending of the fourth Parliament and was revived in the current Parliament.

At this point the Chairperson arrived, apologised, and said that meetings should start without him being present.

Adv Jenkins said the NCOP amendment required that provincial legislation be recognised in the FMPA and be applicable to it. Other areas covered by the existing amendments were on the oversight mechanism where the Speaker, Deputy Speaker, Chairperson and permanent Deputy Chairperson could not form part of the oversight body. The amendment called for all Members to be eligible to serve on the oversight mechanism. Parliament would approve regulations which would also be applicable to provincial legislation. Provincial legislation could provide input, but the decision would be Parliament’s decision. The oversight mechanism’s functions were that of oversight over the annual statements and annual reports of Parliament. The amendment would include that the draft strategic plan, the draft annual performance plan and the budget and adjustments budget, be referred to the oversight mechanism. Possible conflict of interest on the part of the executive, which was an issue of debate in the fourth Parliament, was covered by the proviso that the joint rules had to provide for a conflict of interest, should it arise, by excluding such a person from those deliberations.

With regard to Mr Ross’s question, he said that in terms of the rules of Parliament, the NA could deal only with the amendment the NCOP made.

Treasury had made a submission during the hearings regarding a new budget structure for Parliament and legislatures, which would strengthen the concept of a separation of powers. Treasury wanted a lump sum transferred to legislatures, from which Parliament would pass its own budget with a few exceptions, where funds were for a specific purpose -- like direct charges for Members’ salaries -- which would not form part of Parliament’s budget.  Parliament would have to have an adjustment budget from its own or from donor funds to accommodate any unauthorised spending.

The AG ‘s submission was that performance auditing was not clear enough in the Public Finance Management Act (PFMA) and the FMPA. It wanted the bill to make clear that apart from the financial statements, the annual performance plan and the audit report on the financial statements were included in the performance information.

Other amendments that had been made were with regard to the work processes of the AG and the executive authority not being aligned with the processes of the PFMA. The role of the accounting officer had now been made clearer, with the AG submitting its report to the accounting officer, who would submit it to the executive authority, making it consistent with the PFMA.  Further amendments were to take the provinces out of the PFMA and to avoid duplication in the PFMA and the FMPA, and the Provincial Legislatures Act.

The Chairperson said discussion was open on the amendment and not the whole bill, which would require a different procedural process.

Discussion
Dr D George (DA) said mention had been made that the amendments had been in line with recognised parliaments. What were the other parliaments?

Mr Ross said the bill needed more research, his main issue being the representation of the oversight mechanism. In the original bill, the executive authority could not be part of the oversight mechanism.

Dr George asked what the status of the bill was.

Mr Ross said the bill was bad, and that the fifth Parliament offered an opportunity to correct it.

Adv Jenkins said that the process of the bill had been revived in the current Parliament and the amendment the NCOP had made had been referred back to the NA, which was why the Committee were deliberating the amendment. If one wanted to open the whole bill to scrutiny once more, then the bill would have to be rejected. He said the amendment was a technical amendment, which strengthened oversight over the allocation and use of political party funding. Nowhere in the bill did it state that the executive authority should or should not be part of the oversight committee.

Dr M Khoza (ANC) wanted to know what was fundamentally flawed in the amendment, and what would happen were it not passed.

Dr George said what was fundamentally wrong with the bill was that the previous Parliament did not do justice to it, because they were rushed into passing it before the end of the term of Parliament. At that time, the DA wanted the executive excluded from the oversight mechanism because it wanted to strengthen the oversight of Parliament, which was the main reason for the Act in the first place. It appeared that the teeth had been pulled from the bill, and that was the DA’s key concern.

Dr George said the DA wished to reserve their position on the amendment.

Mr Ross said he wanted to flag that when the bill had been processed, there had been a time limit which they had had to adhere to.

The Committee  adopted the FMPA [B1B-2014]  bill.

Money Bills Amendment Procedure and Related Matters Act
Adv Jenkins said the NA had referred issues regarding time frames and sequences to the Committee. Time frames had been under discussion by the previous committee, which had recommended that a workshop be held.

A second matter was that of the adjustment budget, which had been considered in a joint sitting because of time constraints. The adjustment budget, including the Division of Revenue Bill, was a section 76 bill, which meant it had to be done separately and thus required an amendment to the Act.
 
A third matter was the norms and standards of provincial legislation, which leant too far into the provincial legislatures’ right to pass their own Money Bills Procedures Act, as set out in section 123.

Another matter was that of the operations of the budget office, where section 15 detailed the management role of the four finance committees which had certain functions, and these functions needed to be discussed. The fact was that the report to the House needed to be through an executive authority, and the FMPA needed to be incorporated into the financial management of the budget office. Not much had happened regarding these issues because of time pressures in the last Parliament. He said the Committee could start where the previous committee ended or could start afresh.

SA Special Risks Insurance Association (SASRIA)
Mr Mohamed Adam Samie, Chairperson of SASRIA, gave a brief history of SASRIA.  Following the 1976 uprisings, insurers had excluded political risk cover from policies.  A section 21 company had been formed in 1979, with government as the re-insurer of last resort. This company had changed in 1988 to a State-Owned Company (SOC) with the State as sole shareholder, and the company operating in the private sector as if it were fully privatised. It provided companies with risk cover against loss caused by riots, civil unrest and malicious damage to property. SASRIA had expanded the cover to include public disorder and labour strikes, so that it played an important role in the economy, especially for foreign investors.  SASRIA had developed a sustainable business model and had been consulted as experts.  It was one of only six similar companies in the world.

Mr Cedric Masondo, Managing Director of SASRIA, said SASRIA provided cover at an affordable rate and the cover could not be refused or cancelled. It distributed its products mainly through insurers and brokers, and thus costs were kept low. Five years ago, its books had been strong enough for government not to be the insurer of last resort, with the company getting reinsurance in the market.   Seventy per cent of its sales were to commercial and corporate clients, while the balance was to the personal market.  SASRIA was self-funded and paid a dividend to the Treasury.

It had supported 140 actuarial students attain an actuarial degree, of which 13 had become actuaries in its talent management strategy.

Ms Karen Peplar, Financial Director of SASRIA, said gross premiums were R1.39bn for the year ended March 2014 -- a growth of 13.65% over the previous year.  Paid claims were 18.3%, but there had been an increasing trend over the past few years. The management expense ratio stood at 23.2%, while return on equity was 15.7%. The increase in paid claims was reflected in the increase in claims from 2009 till present, and could be attributed to labour disturbances and civil unrest in this period. She added that while the value of the claims had increased, the claims were fully covered.

Mr Masondo said the period from 1994 to 2007 was characterised by low claims but that labour strikes and damage to property occurred from 2010 onwards. Since the previous year, claims arising from damage during service delivery protests had increased and were of concern.
Since 2008, the company had looked at developing a strategy for 2015 – 2019. It was looking to grow revenue and expand business by selling to people who needed SASRIA but were not buying its products because the SASRIA brand was currently not visible enough.  It was a major challenge to access these markets, but it would be a focus of the company going forward.
Discussion
Dr George asked if SASRIA had reinsurance, since the state was no longer the underwriter.
Ms D Mahlangu (ANC) asked what the impact of a “terrorism strike” on the economy would be.
 
Dr Khoza asked how risk was covered in the management strategy. What was the SASRIA client profile?
Mr F Shivambu (EFF) asked who SASRIA’s major clients were. Who were their brokers? Where were the students SASRIA had supported?

Mr Ross asked if the municipalities took out SASRIA insurance. Were towns and consumers covered when power cuts occurred?

The Chairperson asked how SASRIA had attained a strong balance sheet in a country with a high level of social protest.

Mr Samie replied that government was a 100% shareholder of the company and therefore government, by implication, was obliged to help the company and was thus technically the insurer of last resort, as the nature of the insurance covered socio-political issues. However, the organisation was expected to be self-sustaining and operated in the broader market.  It had grown its capital to R4.6bn.
A big focus for the company would be to make its branding more visible and to operate among the under-serviced population. The organisation had to be geared to accept informal traders taking its products. This would be its contribution towards strengthening the economy.
All local authorities took SASRIA cover.  The problem, however, was that they did not have complete asset registers.
Regarding the question on terrorism, he referred to the case of Kenya, where it had been difficult for businesses to obtain cover locally and cover could be found only overseas at expensive rates.
SASRIA did its own underwriting.  Its strategy plans covered both sustainability and risk management.
Regarding ‘twin peaks‘ legislation, he said SASRIA was regulated by the Financial Services Board and the new legislation would add costs, but they would be absorbed by the expanded product distribution.
Regarding the question on power cuts, he said that the cover SASRIA could provide was very circumscribed.
He felt that SASRIA could play a role in job creation by being more specific regarding the supply of its goods and services.
When SASRIA had started, there were no black actuaries.  SASRIA had contributed to the education of 140 students attaining an actuarial degree, and 13 had become actuaries.
Mr Masondo said SASRIA had a close relationship with the SA Local Government Association (SALGA) and had created a product specifically for councillors whose properties were targets of civil unrest.

SASRIA insurance was not compulsory.  Insurers would add it on as an extra item and were paid commission, and banks would insist on the product when lending money for the purchase of a house or car, thus there was a perception that it was compulsory.

Three years ago, SASRIA had started a project related to the twin peaks legislation with the intention of covering Solvency Assessment and Management (SAM).  SAM was to be implemented in 2016, but SASRIA was already working according to a SAM regime.

SASRIA bought re-insurance in the open market.

SASRIA had made a contribution to the National Student Financial Aid Scheme (NSFAS) when the Minister had urged companies to make a contribution.

SASRIA was dependant on insurers and brokers for sales, but would be embarking on an aggressive new marketing strategy.

Mr Shivambu said the money given to NSFAS was placed into one basket.  How could SASRIA track whether their money was used for actuarial studies?

Mr  D van Rooyen (ANC) asked how many councillors had taken up the SASRIA product.

Dr Khoza asked if land invasion was covered by SASRIA.

Mr Masondo said that the money for eight students was given to the universities, which were all situated outside of the metro areas.

SASRIA had presented the product at SALGA conferences but he was not sure how many councillors were using it.

SASRIA did not have a land invasion product and land invasions were not part of its mandate.

Mr Samie said discussions around changes in its mandate would require an act of Parliament, which was why interaction with the Committee was good.

The meeting was adjourned.
 

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