No.

1 / 2006


LONG-TERM INSURANCE ACT REGULATIONS TO GIVE EFFECT TO THE STATEMENT OF
INTENT (SOI)

These regulations were recently published in Government Gazette No 29446 dated 1 December
2006 and apply to all policies that are not excluded. Life Offices have started implementing the SOI
from 1 December 2006.

EXCLUDED POLICIES
a) Fund policies,
b) Reinsurance policies,
c) Risk policies.
d) Certain whole-life (risk) policies with an investment element*

* Where a risk policy has an investment element, it will be considered an investment policy (and
therefore included in the regulations) or a risk policy (and therefore excluded from the regulations)
to be determined as follows:

Calculate the aggregate of the risk benefit sums insured under the policy immediately before the
causal event. Calculate the ratio of this aggregate to the monthly premium. If this ratio is GREATER
than the threshold ratio in the table below, then the policy is a risk policy and therefore excluded.

Age next birthday at policy inception Threshold ratio
up to and including 30 480
31 468
32 456
33 444
34 432
35 420
36 408
37 396
38 384
39 372
40 360
41 348
42 336
43 324
44 312
45 300
46 288
47 276
48 264
49 252
50 240
51 228
52 216
53 204
54 192
55 180
56 168
57 156
58 144
59 132
60 and above 120

2

Example 1:
Immediately before the causal event The total of the risk benefits under the policy was R750 000.
The monthly premium paid was R 1000.00. Age next birthday at policy inception was 35 years.
The ratio is R750 000 : R1000 = 750.
The threshold ratio in the table for age 35 is 420.
750 exceeds 420 therefore the policy is a risk policy and excluded.

Example 2:
Immediately before the causal event The total of the risk benefits under the policy was R750 000.
The monthly premium paid was R 2500.00. Age next birthday at policy inception was 35 years.
The ratio is R750 000 : R2500 = 300.
The threshold ratio in the table for age 35 is 420.
300 does not exceed 420 therefore the policy is not a risk policy and is therefore included.



CAUSAL EVENTS

a) Fully paid-up (premiums stopped but policy continues)
b) Premium reduction (policy continues)
c) Term reduction; premium-paying term reduction (policy continues and is not fully paid-up)
d) Part surrender (not s14 transfer)
e) Part surrender because of s14 transfer
f) Full surrender (not s14 transfer); lapse; death
g) Full surrender because of s14 transfer.



RE-IMBURSEMENT

Causal event: 1 Jan 2001 30 November 2006

A credit is to be made to a policy where there has been a causal event, calculated as follows:
i) Charges deducted because of causal event, LESS
ii) Maximum charges (per Regulations), PLUS
iii) Interest



Where policy has NOT come to an end

In the case of fund member and non-fund member polices
Credits to policies are to be made automatically within 6 months after 1 December 2006.

Interest in these cases is calculated as follows:
Interest is credited from date of deduction of charge to date of payment into the policy at an annual
interest rate equal to the growth rate, with a maximum effective rate of 10% and a minimum effective
rate of 0%.

3

Where policy has come to an end

Fund member polices

Adjustment to be made ONLY

where (i) (ii) is R150.00 or more, and
on WRITTEN request, which must be received by the insurer within three years after 1 December
2006.

Payment is to be made directly to the member/dependent/nominee within 6 months after the request
is received.



Interest in these cases is calculated as follows:

from date of causal event to date policy came to an end at an annual interest rate equal to the
growth rate, with a maximum effective rate of 10% and a minimum effective rate of 0%, and
from date policy came to an end to date adjustment amount is paid, at an annual effective rate of
5%.



Non-fund member polices

NO adjustment.
4
MAXIMUM CHARGES

FUND MEMBER POLICIES

CAUSAL
EVENTS
MAXIMUM CHARGES:
CAUSAL EVENT OCCURS
1 Jan 2001 30 Nov 2006
MAXIMUM CHARGES:
CAUSAL EVENT OCCURS
ON OR AFTER 1 Dec 2006
a (fully paid-up)

35% of investment value
immediately before causal event
30% of investment value
immediately before causal event
c (term
reduction/premium-
paying term reduction)
35% of investment value
immediately before causal event
30% of investment value
immediately before causal event
f (full surrender/lapse) 35% of investment value
immediately before causal event
30% of investment value
immediately before causal event
g (full surrender because
s14 transfer)
35% of investment value
immediately before causal event
30% of investment value
immediately before causal event
b (premium reduction
policy continues)
[35%x(old premium new premium)]
old premium

of investment value immediately
before causal event
[30%x(old premium new premium)]
old premium

of investment value immediately
before causal event
d (part surrender not
s14 transfer)
35% of the reduction charges 30% of the reduction charges
e (part surrender
because s14 transfer)
35% of the reduction charges 30% of the reduction charges


NON-FUND MEMBER POLICIES THAT HAVE NOT COME TO AN END BEFORE 1 DECEMBER
2006

CAUSAL
EVENTS
MAXIMUM CHARGES:
CAUSAL EVENT OCCURS
1 Jan 2001 30 Nov 2006
MAXIMUM CHARGES:
CAUSAL EVENT OCCURS
ON OR AFTER 1 Dec 2006
a (fully paid-up) 35% of investment value
immediately before causal event
30% of investment value
immediately before causal event
c (term reduction /
premium-paying term
reduction)
35% of investment value
immediately before causal event
30% of investment value
immediately before causal event
f (full surrender/lapse) No maximum 40% of investment value
immediately before causal event
b (premium reduction
policy continues)
[35%x(old premium new premium)]
old premium

of investment value immediately
before causal event; plus interest
[30%x(old premium new premium)
old premium

of investment value immediately
before causal event
d (part surrender not
s14 transfer)
No maximum 40% of the reduction charges
e (part surrender because
s14 transfer)
N/A (s14 transfers) N/A
g (full surrender because
s14 transfer)
N/A (s14 transfers) N/A


NON-FUND MEMBER POLICIES THAT HAVE COME TO AN END BEFORE 1 DECEMBER 2006
No prescribed maximum charges i.e. no credit is to be paid.
5


COMMUNICATION

Within 6 months after 1 December 2006, insurers must communicate the possible implications of
these regulations to the public via the mass media. In respect of affected policies that are still on
books, the insurer must inform

in respect of fund member policies, every member, and
in respect of policies that are not fund member policies, every policyholder,

of the relevant provisions of these regulations and the possible implications for those policies.


Please note:

1. The minimum termination values are calculated with reference to the fund value at the time of
termination and are not related to the amount of premiums that have been paid up until then.

2. Endowment and other investment policies that were fully surrendered between 1.1.2001 and
1.12. 2006 and that are no longer on books do not qualify for any enhancement. Also whole life
policies that did qualifying but where the final benefit has been paid out on maturity or
surrendered or if it lapsed before 1 December 2006 will not receive any enhancement. The main
reason for this different treatment was the focus on future changes after 1 December and also
to treat retirement savings more favourably for the last 6-year retrospective period.

3. The SOI should be seen as the minimum standards and the first step in a journey to improve
early termination values even further. Negotiations are already under way between National
Treasury and the LOA in this regard subject to certain changes being made to the current
upfront commission regime.

4. Fund members and policyholders should not mistake this initiative as a signal that there are no
consequences for cancelling their policies early or stopping premiums. It still remains true that it
is almost always in a clients best interests to continue his or her policy through to maturity.

5. The income tax rules still need to be finalised as to how cash payments will be treated for
qualifying ex RA fund and ex provident fund members who used individual investment policies.
Fund Rules may also have to be amended in order to make these cash payments. Given the
time constraints in SOI it is hoped that these rule amendments can be approved in time.
Enhancements to existing policies still on books do not have any tax implications.



By: Retail Legal Services (Product Solutions)
Cape Town
8 December 2006