Insurance sector depressed

HARARE - The insurance sector was depressed in the first half of 2014, with the industry’s contribution to the Zimbabwe Stock Exchange (ZSE)’s turnover down 5,97 percent, according to stock broking firm IH Group (IHG)’s insurance index.

It said the sector’s year-on-year to June contribution to the bourse’s turnover was also down 8,18 percent.

“The sector took a knock and performed worse than the ZSE market average on a year-on-year basis,” IHG said.

The sector’s contribution to total market capitalisation was three percent in June 2014 down from four percent in June 2013.

IHG’s corporate analyst Vikesh Goran said the insurance sector’s poor performance and contribution on the ZSE is largely attributed to the liquidity crunch.

He said: “Social attitudes towards insurance, particularly in developing nations such as Zimbabwe, view insurance as less of a need and more of a good to have.

“On the life and pensions business, many employers are feeling the brunt of the liquidity crunch and therefore either cannot afford to pay premiums/contributions or cannot pay them on time.

“On the non-life side (e.g property and liability insurance), the liquidity crisis will see corporates either taking lower levels of cover of not taking cover at all,” Goran added.

He said going forward, “larger companies with micro-insurance business (funeral insurance, limited benefit non-life insurance and creditor insurance) could see stable/growing business volumes while companies with traditional types of business are likely to see lower business volumes if the liquidity crisis persists.”

Goran said companies that have significant exposure to equity investment (the larger, listed companies) will largely depend on how equity markets perform in the second half, with an increase or decrease in equity values impacting on the asset base of these insurers.

Meanwhile, experts have warned of further challenges going forward.

In its first quarter report, industry regulator, the Insurance and Pensions Commission (Ipec), noted that “due to the challenges the economy is facing, companies end up (being) unable to meet obligations,” and this downward trend continues.

Goran said it was likely that unlisted companies could fall technically insolvent, thereby prompting action by Ipec.

“Further problems that are likely to face insurance companies include: late or non-payment of premiums due to the prevalent liquidity crisis, leading to lower new business volumes,” he said, adding that the industry’s performance could be unstable, driven by volatile economic conditions.

“…insurers should hold prudently calculated reserves to ensure solvency and protection for policyholders,” Goran said.

“Going forward, insurers could make use of reinsurance to manage claims costs and liabilities; leverage investment of premiums into medium- to-high yielding assets such as property and equities, for smaller companies, consolidation could improve viability through economies of scale and synergies achieved through common administration platforms.”

Comments (2)

When the service sector such as insurance, banking and tourism keeps going down and yet you hear the President telling us the economy is improving, you begin to wonder if we are still living in the same country. Whoever is the President's advisor clearly is not the sharpest tool in the shed and with such people at the helm, the worst is yet to come.

Dr Know - 22 July 2014

I believe the insurance industry should change the way they do business to accommodate the economic climate . In South Africa which doesn't have a cash crisis you are able to pay your premiums monthly yet in Zimbabwe we are expected to paid a year in advance.

saundy - 23 July 2014

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