HUMAN SETTLEMENTS PORTFOLIO COMMITTEE

MORTGAGE DEFAULT INSURANCE COMPANY (MDIC) UPDATE

MARCH 2013

BACKGROUND

The requirements for establishing the Mortgage Default Insurance Company are as follows:

•From R1 bn Guarantee to Capitalisation

•Insurance license

•Lenders support

•IT infrastructure

The previous update proposed that we would be ready for business in October 2012.

The following slides will update the progress of MDIC

CURRENT STATUS ON CAPITALISATION

• National Treasury requested that the funding model be revised. Their preference is capitlisation rather than a guarantee. The revised funding model and business case were submitted to National Treasury in June 2012.

• A task team with various work streams was established to address various issues.

• The financial modelling work stream engaged PwC to assist. The scope of their work included:

Overall review of the business case – this work was intended to be finalised mid October 2012. The final report was only submitted mid November 2012.

Stress Testing – this was included as part of the overall review of the business case.

Capital adequacy relief

CURRENT STATUS ON CAPITALISATION…cont.

• The review of the business case by PwC highlighted the following:

The model was not resilient enough to potentially adverse changes in the economic environment

MDIC would breach FSB Solvency Assessment and Management (SAM) Interim Capital Requirements after a period of time

The model could be sustainable if appropriately designed

• National Treasury engaged PwC at the end of November 2012 to make the necessary adjustments to the business case to meet SAM Interim Capital Requirements and to make the entity self sustainable

CURRENT STATUS ON CAPITALISATION…cont.

• PwC will present a final report to the joint sitting of MDIC Project Steering Committee NDoHS and National Treasury on 20 March 2013.

• The refined business case includes a revised premium structure that is more granular.

• The refined business model is:

resilient to expected adverse economic changes

sustainable over a long period of time

• The overall construct of the business case remains the same as initially proposed.

CURRENT STATUS ON INSURANCE LICENSE APPLICATION

•Insurance license application submitted to the Financial Services Board (FSB) on 20 July 2012.

•FSB has held various meetings with MDIC during the latter part of 2012 to clarify outstanding issues.

•Once finalisation on the capitlisation is received from National Treasury, the licence application will be tabled to the FSB Licence Committee for approval – expected date May/June 2013

CURRENT STATUS ON LENDERS

•Discussions with the Big Four lenders are on-going. •The lenders assisted PwC with their work by providing them with “through the cycle” Affordable Housing home loan data.

•They are continuously been kept up to date on the findings and recommendations flowing from the work done by PwC.

Lenders are supportive of the MDIC initiative

CURRENT STATUS ON LENDERS…cont.

Lenders have cautioned that the delay in launching MDIC will have an impact on their capital allocation for projects resulting in potential further delays.

•The hurdles for a Lender to sign with MDIC are still:

Insurance Licence

Capitalisation

Confirmation of capital adequacy relief from the SARB

These indicate high risk components of the project

CURRENT STATUS ON GOVERNANCE• MDIC is now a registered company with CIPC.

• An interim Board consisting of four members has been constituted:

Samson Moraba

Sizwe Tati

Johan Coetzee

Neil Savage

• Board Committees and CEO will be appointed once capitlisation and licence has been approved.

• Most Policies and Procedures have been developed and approved by the interim Board.

• The structure of the company is finalised and approved by the interim Board.

CURRENT STATUS ON IT IMPLEMENTATION• IT architecture and capabilities designed.

• Initial IT processes designed and developed.

• The procurement process to appoint a service provider to develop the initial Interface Facility has been finalised.

• A preferred service provider has been chosen and notified. • Formal appointment will follow subject to finalisation of capitalisation.

• Development of IT policies and framework is underway – completion expected June 2013.

NB: Appointment of Service Providers for the development of IT systems shall only commence on confirmation of capital by National Treasury. It will take at least 6 months to develop IT systems.

WAY FORWARD

ACTIVITY TARGET DATE

PwC to present the final report 20 March 2013

Finalisation of capitlisation April/May 2013

The following are subject to the finalisation of capitalisation

Licence application to be reviewed by the FSB licencing committee

May/June 2013

Engage with SARB on capital adequacy relief April/May2013

Appointment of service provider to develop Interface Facility May 2013

Sign a Lender September 2013

Test the IT Infrastructure with a Lender August/September 2013

Commence Business 3rd Quarter of the year

Q & A