SAM & ORSA: Navigating South African Capital Requirements Under the Prudential Authority
A practical guide to the Solvency Assessment and Management (SAM) regime and the Own Risk and Solvency Assessment (ORSA) process — and what South African insurers must get right to satisfy the Prudential Authority.
What SAM Means for South African Insurers
The Solvency Assessment and Management (SAM) regime is South Africa's risk-based prudential framework for insurers, administered by the Prudential Authority under the Financial Sector Regulation Act. It aligns closely with the Solvency II framework but is calibrated for the local market. Understanding SAM's capital requirements is fundamental for any insurer operating in South Africa — and for the advisers who support them.
The Three Pillars of SAM
SAM is structured around three pillars, mirroring the international standard:
- Pillar 1 – Quantitative requirements: Technical provisions, eligible own funds, the Solvency Capital Requirement (SCR) and the Minimum Capital Requirement (MCR).
- Pillar 2 – Governance and ORSA: Requirements for board oversight, risk management, the actuarial function, and the Own Risk and Solvency Assessment (ORSA) process.
- Pillar 3 – Disclosure and reporting: Quarterly and annual QRT regulatory reporting and public disclosure obligations. This links directly to our practical guide on QRT and A-QRT reporting under SAM.
How the Solvency Position Fits Together
It is tempting to think of an insurer's SAM position as simply the output of a capital calculation. In practice, the reported solvency ratio sits at the end of a connected chain, and every link must hold for the result to be meaningful.
The SAM Solvency Chain
Figure 1 · ChainA solvency ratio is only as reliable as the calculations underneath it. A weakness in any one link can flow through into the reported position.
An insurer's SAM position brings together the prudential valuation of assets and liabilities, technical provisions, eligible own funds and the individual risk modules making up the SCR. A weakness in one part of the calculation can therefore flow through into the reported solvency position.
Understanding SCR and MCR
The Solvency Capital Requirement (SCR) is the amount of capital an insurer must hold to remain solvent over a one-year horizon with a high degree of confidence. The Minimum Capital Requirement (MCR) is a lower, absolute floor below which authorisation would be threatened.
The SCR is built up from a set of risk modules, each capturing a distinct source of uncertainty. The precise structure depends on the insurer — its mix of business, investment strategy, reinsurance programme and corporate structure. The conceptual architecture below shows how the principle fits together.
Example SAM SCR Architecture
Figure 2 · ArchitectureA conceptual illustration of how the SCR is assembled — not a complete or standard structure for any particular insurer.
Technical Provisions: The Foundation Matters
Technical provisions are a foundation of the solvency calculation. The way liabilities are valued on the SAM basis — reserving methodology, cash-flow assumptions, expenses, reinsurance, discounting and risk margin assumptions — can materially affect both the prudential balance sheet and the capital position.
This is also where IFRS 17 and SAM interact: reconciling the financial statement position to the prudential measure is an ongoing challenge for South African insurers. Our guide to local reserving and actuarial audit readiness explores this in depth.
Common SAM and Capital Issues in Practice
In our actuarial audit and HAF work, a small number of themes recur. These issues are high-level and structural — and a strong SAM process anticipates them rather than discovering them late.
- Data that cannot be readily traced or reconciled: SAM calculations draw information from policy, claims, reinsurance, investment, finance and actuarial systems. A calculation becomes difficult to validate when inputs cannot be traced consistently to source systems, financial accounts or valuation models.
- Technical provisions feeding inconsistently into capital: Problems arise where the technical provision methodology has changed, assumptions are insufficiently supported, or outputs do not reconcile consistently into the SCR and regulatory reporting process.
- SCR components that are individually reasonable but not reproducible: Over time, calculations can become dependent on manual adjustments, linked spreadsheets or undocumented transformations. The question is not only whether the final SCR looks reasonable, but whether an independent reviewer can reproduce and explain how it was determined.
- Asset, counterparty and reinsurance treatment: Asset classification, market stresses, counterparty exposures and reinsurance treatment can have significant effects on the SCR. Particular care is required where assumptions, mappings or methodologies determine how exposures enter the standard formula.
- Movements that are reported but not explained: A change in the solvency ratio should be explainable. Premium growth, claims experience, reserve strengthening, investment movements, reinsurance changes and changes in assumptions can all affect own funds or required capital. A robust process includes meaningful analysis of changes, not just a comparison with the prior period.
- ORSA disconnected from the underlying SAM calculation: The ORSA should not start from a different version of reality than the regulatory capital position. The opening balance sheet, technical provisions and SCR should connect to the insurer's prudential reporting position, with any roll-forwards or adjustments clearly understood.
The Role of the Head of Actuarial Function
SAM is not simply a Finance or regulatory-reporting exercise. The Head of Actuarial Function (HAF) is required to form an opinion on the adequacy and reliability of technical provisions, MCR and SCR, and to highlight material concerns, assumptions, judgements and areas of uncertainty to the Board.
This means the HAF needs sufficient evidence to understand not only the final results, but also the data, methodologies, assumptions, controls and material movements underlying them. The statutory opinion is supported directly by controls such as reconciliation to administration systems, movement analysis, model input and output checks, and reconciliation back to the financial accounts.
A calculation that produces a plausible solvency ratio is therefore not necessarily a robust SAM process. It also needs to withstand independent challenge and support the HAF's opinion to the Board.
The ORSA: More Than a Compliance Exercise
The Own Risk and Solvency Assessment (ORSA) is the heart of Pillar 2. It requires insurers to assess their own risks, the adequacy of their capital position relative to their risk profile, compliance with capital requirements at all times, and the extent to which their risk profile deviates from the assumptions underlying their SCR.
The value of an ORSA lies not in producing another regulatory document, but in demonstrating that solvency, risk appetite, business planning and management actions have been considered together on a forward-looking basis. The Prudential Authority expects the ORSA to be a genuine process embedded in the Board's decision-making.
What a Decision-Useful ORSA Should Answer
- What risks are we actually exposed to? Including risks not simply represented in the standard formula.
- How much capital do we need under our own risk profile? Including material risks that may not be fully reflected in the SCR.
- What happens to solvency under our business plan? Over a three-year or otherwise relevant planning horizon.
- What could materially weaken the capital position? Through stress and scenario testing.
- What would management do about it? Capital raising, reinsurance, pricing, growth constraints, portfolio changes, dividend management, and so on.
The ORSA starting point should be consistent with the technical provisions and SCR at the valuation date, with any roll-forward to the assessment date reviewed and understood. From there, the insurer should assess how its capital position develops under the business plan and under relevant stresses and scenarios.
A Solvency Calculation Must Be Defensible, Not Just Calculated
A reported SCR can be numerically correct but still difficult to defend if the underlying data, assumptions, model steps or adjustments cannot be readily demonstrated. A robust SAM process should allow a knowledgeable independent reviewer to understand:
- where key inputs came from;
- why material assumptions are appropriate;
- how technical provisions feed into the prudential balance sheet;
- how each material risk exposure enters the SCR;
- what changed from the prior period;
- which judgements or manual adjustments were made;
- how the result connects to the QRT, ORSA and Board reporting.
What Good SAM Governance Looks Like
The objective is not to create documentation for its own sake. It is to make the solvency position understandable, reproducible and usable in decision-making.
Where Independent Actuarial Support Can Add Value
Independent SCR review
Review the calculation methodology, inputs, mappings, assumptions, stresses and material movements.
Technical provisions & capital interaction
Assess whether reserving and valuation outputs flow consistently into the prudential balance sheet and capital calculation.
SAM data & reconciliation review
Trace key inputs through source systems, models, financial reporting and regulatory returns.
Capital movement analysis
Explain material changes in SCR, own funds and solvency coverage between reporting periods.
ORSA review & development
Review whether the ORSA is linked to the business plan, risk profile, capital projections and stress/scenario analysis.
HAF support
Provide additional actuarial analysis, review and documentation supporting the HAF's assessment of technical provisions, SCR, MCR and future solvency.
Audit & regulatory readiness
Help make calculations reproducible, supportable and ready for independent audit, HAF review or Prudential Authority scrutiny.
How Wizard & Co. Can Help
Our team works alongside South African insurers' actuarial, finance and risk teams across the full SAM lifecycle — from the underlying calculation to the Board's decision-making. We bring an independent, practical perspective on where SAM becomes difficult.
- SCR & MCR calculations and independent review
- Technical provisions and prudential valuation
- SAM data and reconciliation
- QRT regulatory reporting
- ORSA and future solvency projections
- Stress and scenario testing
- Capital movement analysis
- HAF support
- Audit readiness and remediation
- Prudential Authority queries
If you would like to strengthen your SAM process, review an ORSA or prepare for audit, we can help. You can also explore our SAM, Capital & Regulatory services, or our guides to QRT reporting, reserving and audit readiness and reinsurance, SAM and IFRS 17.
Sources & Further Reading
The primary statutory and supervisory sources underpinning this article. Where current versions or notices apply, we recommend confirming directly with the Prudential Authority.
- Insurance Act 18 of 2017 — the primary legislation governing the prudential regulation of insurers in South Africa.
- Financial Sector Regulation Act 9 of 2017 — establishing the Prudential Authority as the prudential regulator.
- PA Prudential Standards — the binding subordinated legislation supporting the Insurance Act and the SAM framework.
- GOI 3.1 – Own Risk and Solvency Assessment (ORSA) — the Prudential Authority's governance standard for the ORSA process.
- Current PA QRT guidance — the Prudential Authority's quantitative reporting templates, instructions and communications.
Need SAM or ORSA Support?
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