Namibia’s Financial Institutions and Markets Act (FIMA) and its standards came into force on 1 May 2026, and insurers are now working through what the new capital rules mean for particular products rather than just in principle. Contingency policies are a good example: The structure is well established in this region, yet the new formula does not appear to account for it.

A contingency policy usually works like this:

• The buyer pays a premium to a licensed insurer.
• A fee is deducted, and most of the premium is credited to an experience account.
• Claims are paid from that account first. Whatever is left is returned to the buyer, often as a profit share.
• The insurer's own money is at risk only above the account, up to the policy limit, which is typically a little above the premium.
• Effectively, the insurer carries a thin layer of risk, not the full sum insured.

Namibia's new non-life capital formula does not appear to recognise the risk sharing inherent in these policies. The insurance risk charge under Standard INS.S.2.1 is calculated as the net written premium multiplied by a factor per class of business, and "net written premium" is gross written premium less reinsurance premiums paid.¹,² Reinsurance is the only risk transfer the formula recognises explicitly.

A contingency policy generates the same capital requirement as a conventional policy of the same premium, even though the experience account absorbs losses before the insurer does. Capital is being held against risk that has substantially been transferred back to the policyholder.

That may be deliberate. A standard formula is a conservative proxy, not a measurement of each insurer's retained risk, and simplicity, comparability and protection against gaming are legitimate things for a regulator to prefer over precision. But the gap between the charge and the risk on these contracts can be large.

A tempting fix, and why I would caution applying it

FIMA defines a premium as "the consideration given or to be given in return for an undertaking to provide insurance."³ The portion of a contingency-policy payment that is returned to the buyer, whatever happens, is arguably not consideration for insurance at all, but a deposit. Call it that, and it potentially drops out of net written premium, and the capital charge falls away.

There are reasons to be cautious though.

Insurance contracts routinely contain deposits, investment components and premium refunds without ceasing to be insurance, so the presence of a deposit element does not mean the entire policy is not insurance. The Namibia Financial Institutions Supervisory Authority (NAMFISA) might be wary of complicating a definition of premium that applies more generally across life and short-term insurance.

IFRS 17 already treats the repayable portion as an investment component and takes it out of insurance revenue, which is a fair argument that the distinction is economically real. That could be an argument to put to the regulator but is not one to act on unilaterally. It is an accounting classification made under accounting definitions, so it may not be compelling to a regulator.

Ultimately, the most critical concern might be tax. Tax deductibility of the payment by the policyholder to the insurer rests on it being premium for insurance, so an insurer that re-characterises it for capital purposes may create a problem on its client's tax return, or for itself.

A better resolution could be to apply Clause 7

The standard has an allowance for this kind of situation. Under INS.S.2.1 Clause 7, NAMFISA may vary the Solvency Capital Requirement (SCR) of an insurer at its discretion, and an insurer may apply for a variation in writing with "detailed supporting information, documents and explanations."⁴

Clause 7 is a broad supervisory discretion rather than a bespoke internal model route, and it is not specifically aimed at this problem. The regime is only a few months old, and I am not aware of it being applied anywhere yet. An application must earn the approval: It must show why the standard formula's premise, that premium is a reasonable proxy for exposure, does not hold for this specific product construct. That is a narrower and more defensible argument than asking for a general dispensation.

A variation application must directly address the issue—that the formula overstates the risk this insurer actually carries. What might make an application more compelling could be seen in how the neighbouring regime came to handle the same problem.

South Africa's standard formula did not always cater for this either. Before Solvency Assessment and Management (SAM) was implemented, there was, in the SAM steering committee's own words, "no special regulatory dispensation for first party insurance structures in South Africa"; they were managed through specific licence conditions.⁵ SAM then created an optional adjustment to the premium and reserve risk charge for policies with risk-sharing features.⁶,⁷ The conditions attached to that adjustment are a useful guide to what a serious Namibian application might contain and how it could be positioned.

• The loss absorbency must be demonstrated, in a dedicated report by the actuarial function (or valuator, as the equivalent is termed in Namibia).
• The benefit is capped relative to the impact on SCR.
• The election is permanent once made, but the regulator keeps the right to disregard it.
• All risk-sharing features must be modelled, not only the ones that reduce capital.
• Credit should be limited to amounts actually available to absorb losses.
• An asset contingent on future profits outside the contract boundary may not be recognised for financial soundness purposes. (Attachment 2 of FSI 4.3 does not say this explicitly, but it follows from the wider standards and the exclusion of contingent assets to demonstrate solvency.)
• Reliance on a counterparty to pay needs an allowance for the counterparty not performing.

An application built to this standard would:

• Quantify the insurer's retained risk layer under the stress the formula contemplates.
• Show the experience account absorbing losses ahead of the insurer's own funds.
• Take credit only up to balances actually held.
• Work through the consequences for target capital cover and the Own Risk and Solvency Assessment (ORSA) rather than leaving them for the regulator to ask about.

The concepts carry across; though, the legislation, the regulator and the supervisory expectations do not, so the analysis needs Namibian tailoring rather than transplanting.

There are separate questions about how contingency policies fit the rest of the framework and who may share in profits, but that is a topic for a separate note.

Back to capital requirements, my view is that the formula may (considering the specific context, product, counterparty and balance sheet involved) overstate the risk on these policies, and that Clause 7 is a potentially workable route the standard itself provides. The insurer that arrives at NAMFISA with the analysis done may have a more productive discussion and may more likely achieve a positive outcome.

¹ The insurance risk charge is net written premium per class multiplied by the factor in Table 1 of Schedule 1. Clause 1(1)(j): "net written premium" means amounts in respect of gross written premiums "less an amount equal to the premiums paid and owed... in respect of any reinsurance business over a period of 12 months.”

² Namibia Financial Institutions Supervisory Authority. (30 April 2026). Government Gazette 8907. Retrieved 6 August 2026 from https://www.namfisa.com.na/wp-content/uploads/2026/06/INS.S.2.17_Cancellation_or_Variation_of_Registration_Insurance_Brokers.pdf.

³ Namibia Financial Institutions Supervisory Authority. (1 October 2021). Financial Institutions and Markets Act, 2021: Act 2 of 2021. Retrieved 6 August 2026 from https://namiblii.org/akn/na/act/2021/2/eng@2021-10-01/source.pdf.

⁴ Namibia Financial Institutions Supervisory Authority. (2021). Financial Institutions and Markets Act, 2021: Standard No. INS.S. 2.1. Retrieved 6 August 2026 from https://www.namfisa.com.na/download/ins-s-2-1-capital-adequacy-requirements-for-insurers/?wpdmdl=24499&refresh=6a7493cfd26661786024911.

⁵ Prudential Authority. (2021). Prudential Standard FSI 4.3: Non-life Underwriting Risk Capital Requirement. South African Reserve Bank. Retrieved 6 August 2026 from https://www.lawexplorer.co.za/StatutoryDatabase/SubordinateFile/SubordinateFileDownload/7999.

⁶ Ibid.

⁷ The first-party simplified method in Attachment 1 of Prudential Standard FSI 4.3, and the optional adjustment for insurance policies with risk-sharing features in Attachment 2. Attachment 2 requires a dedicated report by the head of the actuarial function (paragraph 4), prohibits modelling some risk-sharing features while omitting others (paragraph 7), caps the improvement in SCR cover at 25%, or a lower percentage the Prudential Authority may prescribe case by case (paragraph 6), and reserves the Prudential Authority's right to disregard the adjustment (paragraph 8).