ROB BARROW – EXECUTIVE OFFICER SUZETTE VOGELSANG – HEAD: INSURANCE PRUDENTIAL

1. PRESENTATION BY THE FINANCIAL SERVICES BOARD TO THE PORTFOLIO COMMITTEE ON TRANSPORTRE: VIEW ON THE ROAD ACCIDENT FUND’S (“RAF”) CURRENT SITUATION AND THE RAF’S RESCUE PLAN ROB BARROW – EXECUTIVE OFFICER SUZETTE VOGELSANG – HEAD: INSURANCE PRUDENTIAL

2. INTRODUCTION • Last report by FSB on RAF for the financial year ended 31 March 2006 • In the process of finalising the report for the financial year ended 31 March 2007 • FSB’s report highlighted the shortfall in net assets of the RAF • FSB regulates insurance industry on a prudential basis • FSB’s review of RAF’s “Rescue Plan” • The question is “Should the RAF be funded on the same basis as a registered short-term insurance company?”

3. FINANCIAL POSITION OF THE RAF • Annually a report to Honourable Minister of Finance

4. FINANCIAL POSTION OF THE RAF • Increase in deficit • Fund is in a technically insolvent position • RAF does not have sufficient cash or near cash assets to cover its short-term liabilities • The liquidity ratio 0.42:1 (0.61:1, 2006)

5. FSB’S VIEW ON THE FINANCIAL SUPERVISION OF THE RAF • Fundamental Insurance principles are not embodied • Funding received is disconnected from the benefits payable by the Fund • No direct relationship between the Fund and the insured person • Standard fixed rate is not in line with general insurance underwriting principle i.e. poor risk should pay a higher premium

6. FSB’S VIEW ON THE FINANCIAL SUPERVISION OF THE RAF • Financial Supervision of the RAF Act silent on the objectives of the supervisory functions. • Short-term Insurance Act, 1998 specific requirements: • Solvency • Liabilities to be provided for • Types of assets to be invested in • Liquidity requirements • Fit and properness of directors • Limitation of certain actions by insurers • Registration conditions • Actions by the Registrar

7. FINANCIAL POSITION OF RAF vs. ST INSURANCE INDUSTRY TYPICAL 1 – RAF claims includes claims related expenses 2 – RAF Expenses only in respect of staff and admin cost 3 – ST Insurer expenses includes commission payable i.e. Motor business 12.5% and other business 20%

8. FINANCIAL POSITION OF RAF UNDER ST INSURANCE ACT, 1998

9. FSB’S VIEW OF RESCUE PLAN Not in a position to comment on the Rescue Plan as such The Rescue Plan appears to adequately address the key issues Noted the following since the implementation of Rescue Plan: Increase in staff productivity i.e. number of claims finalised per staff member First time claims finalised greater than claims lodged during 2007 Noted an improvement in administration and staff expenses HOWEVER: An increase in the number of months delay in claim settlement No improvement in costs to service providers Fruitless expenditure of R10million for interest and sheriff cost

10. FSB’S VIEW OF RESCUE PLAN (Cont.) • Supervising the insurance industry the following: • Very expensive to implement and maintain a new system • Normally teething problems with a new system that can cause unplanned delays • Difficulty in attracting and retaining knowledgeable and experienced staff • Internal control, segregation of duties and clear processes and procedures