SFG Insurance collapses

HARARE - Zimre Holdings Limited (ZHL)’s short-term insurer SFG Insurance Company (SFG) has collapsed.

SFG’s closure comes after investigations by the Insurance and Pensions Commission (IPEC), which exposed a huge negative solvency ratio with its capital base falling far short of the minimum threshold required.

IPEC yesterday advised stakeholders that it had directed SFG to stop writing business with immediate effect.

“All its (SFG) branches have been closed and the head office will remain open to facilitate the winding up process,” said the Commission.

IPEC said the insurer is “insolvent and the shareholders have failed to recapitalise the company.”

A report by the insurance industry regulator last year revealed that SFG’s capital stood at a negative $1,13 million at the end of the reporting period, while shareholders’ equity was $1,12 million.

This was a far cry from the minimum $300 000 required of insurance companies as at June 30, 2012.

“As investigations into the operations of SFG Insurance Company (Private) Limited are continuing and to ensure an orderly exit of the insurer from the market, the Commission has, in terms of section 67(3b) of the Insurance Act (chapter 24:07), frozen all the assets of SFG Insurance Company (private) Limited and SFG Holdings (Private) Limited,” said IPEC.

Last September, Ipec pegged new minimum capital requirements for non-life insurance companies at $2 million.

SFG’s solvency ratio stood at a negative -97,96 percent compared to the sector average of 83,57 percent for short-term insurers as at June 30, 2012.

The regulatory minimum solvency requirement is 25 percent.

According to Ipec, the total capital base for direct short-term insurers was skewed towards revaluation and other reserves which accounted for 28,3 percent of the same, followed by share premium which constituted 28,03 percent.

In contrast, SFG’s parent company — Baobab-Reinsurance — had a huge solvency ratio of 296 percent despite reporting a loss of $3,10 million as at end of June 2012.

For the industry as a whole, short-term reinsurers recorded an average combined ratio of 109,6 percent for the six months ended June 30, 2012, compared with 89,7 percent recorded in the comparative period in 2011, reflecting deterioration in profitability as total expenses exceeded written premiums.

The loss ratio for the industry increased to 43,54 percent from 29,96 percent.

This was still below the international benchmark of 60 percent.

In line with the deteriorating loss ratio, the total underwriting profits for the reinsurers decreased to a negative $2,21 million from $2,70 million last year, implying a decline in the quality of business written.

Baobab-Reinsurance remains the leader by market share at 21,15 percent, followed by First Mutual Reinsurance at 19,8 percent, ZB Reinsurance 17,6 percent and FBC-Reinsurance at 13,5 percent.

The market share in terms of gross premium written controlled by the top three reinsurers declined to 58,5 percent from 66,8 percent reflecting increased competition in the sector.

Baobab-Re owns 59 percent of SFG while NICO Holdings Limited holds 41 percent. - John Kachembere

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