Insurers' future gloomy: Report

HARARE - Zimbabwe's short-term insurers’ future is gloomy, as the firms continue to haemorrhage due to the deteriorating country’s economy, a latest industry report has shown.

According to the Insurance and Pensions Commission (Ipec) second quarter survey, profitability declined for the firms, the majority of whom are failing to meet minimum capital requirements due to depressed business opportunities.

“Profitability for both direct insurance companies and reinsurance companies deteriorated in the wake of increasing operating expenses coupled with constrained growth in business generated,” said the insurance industry regulator.

Ipec said total profit after tax for non-life insurers decreased from $7,38 million for the half year ended June 30, 2013 to $5,95 million for the half year ended June 30, 2014.

On the other hand, profit after tax for reinsurers decreased from $5,62 million for the half year ended June 30, 2014, to $0,72 million for the period under review.

“The non-life insurance industry was not spared by the liquidity challenges being faced by the economy, as evidenced by deterioration in key liquidity indicators,” said Ipec.

In the period under review, out of all the 26 registered and operating non-life insurers, eight companies reported capital positions which were not compliant with the minimum capital requirement of $1,5 million.

This comes as Zimbabwe’s economic growth has been decelerating since the Zanu PF government took control of the economy after a disputed election victory last year.

Recently, Finance minister Patrick Chinamasa was forced to slash this year’s gross domestic product target from 6,1 percent to 3,1 percent due to lack of aggregate demand and deflationary pressures.

The massive closure of companies has also witnessed a lot of people and corporates relegating insurance to the luxury items position.

Ipec noted that total assets for the non-life insurance industry decreased marginally from $344,37 million as at  March 31, 2014 to $343,74 million as at June 30, 2014.

“All the short-term underwriters, except FBC Reinsurance Company, were not compliant with the prescribed assets ratio. Out of all the operating underwriters, only 12 had investments in prescribed assets.

“The risk appetite of both non-life insurers and reinsurers remained largely unchanged as indicated by negligible changes in the industry average retention ratios,” read part of the report.

The insurance regulator also expressed concern over the deteriorating quality assets of short-term insurance companies.

Although total assets for non-life insurers have generally been on the upward trend since 2009, there was a 2,92 percent decline that was reported during the quarter under review from $181,4 million as at end of March 2014 to $176,24 million as at June 30, 2014.

 

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