More woes for insurers

HARARE - Government plans to hike minimum capital requirements for insurance firms, Finance minister Patrick Chinamasa indicated in his 2015 National Budget.

He said after having been last revised in 2013, “the minimum capital requirements will further be reviewed upwards.”

The move, the Treasury chief said, would “improve underwriting capacity and contain insurance business being placed outside the country.”

This comes as Zimbabwean insurers are struggling on the back of waning economic activity, with most of them failing to comply with current capital requirements.

At the moment, short-term insurers, life re-assurers, funeral assurers and short-term reinsurers are required to have minimum capital of $1,5 million while life assurers need $2 million. Prescribed securities need $1 million.

In terms of the compliance timelines, insurance companies were supposed to be 50 percent compliant by June 30, 2013, 75 percent compliant by December 31, 2013 and attain full compliance by June 30, 2014.

However, as at June 30, 2014, out of the 25 insurance companies operating in the country only 11 had capitalised and in compliance with the new capital requirements under the new amendments to the Insurance Act (Chapter 24:07).

Chinamasa also warned that non-compliant players do so immediately.

“…I urge those companies that are yet to comply with minimum capital requirements to work towards full compliance as adequate capital facilitates underwriting of more business,” he said.

Meanwhile, analysts say consumers now view insurance as a luxury due to worsening economic conditions in the Zimbabwe, hence the failure to comply with the stipulated requirements.

Liquidity problems being experienced by the country have left many insurance companies stranded without clients, according to players in the industry.

The country’s slowing GDP growth; rising inflation, unemployment and the financial pressure on consumers all weigh on the insurers’ operating environment in the country.

Currently, the amendment of the Insurance Bill is in progress, and the new one was set in July this year.

It places emphasis on corporate governance, monitoring and compliance in the sector.

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

The IHG report 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 Zimbabwe Stock Exchange 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.


Comments (5)

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Chaporomoka Chamukwenjere - 2 December 2014

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John Madhir' - 2 December 2014

Reviewing the minimum capital levels for insurance companies will not solve anything, especially during these hard periods when the economy is not performing. Minister Chinamasa should rather boost the aggregate demand levels in the economy to reduce unemployment and to address the economic challenges currently bedevilling the insurance industry first, before enforcing a rather suicidal act that will force all the insurers to shut down. What the insurance industry needs right now is not an arbitrary and a misguided increase of minimum capital levels but rather a regulatory reform of stringent and outdated legislations that have not added any value to Zimbabwean insurers. It's high time that the Zimbabwean insurance industry adopts Solvency II which advocates for the implementation of Risk Based Capitals (RBCs), Corporate Governance and the maintenance of sufficient technical reserves and assets for insurers. Risk-Based Capital (RBC) is a method of measuring the minimum amount of capital appropriate for an insurance entity to support its overall business operations in consideration of its size and risk profile. RBC limits the amount of risk a company can take. It requires a company with a higher amount of risk to hold a higher amount of capital and the opposite is equally true. RBC is the way to go because it's intended to be a minimum regulatory capital standard and not necessarily the full amount of capital that an insurer should hold to meet its safety and competitive objectives. In addition, RBC is not designed to be used as a stand-alone tool in determining financial solvency of an insurance company; rather it is one of the tools that give regulators legal authority to take control of an insurance company.

President Madaz (the insurance guru) - 3 December 2014

The current minimum capital amounts for local insurers are woeful to say the least. They most probably collect far in excess of these amounts in premiums. To make matters worse we are expected to pay the whole annual premium in advance!

saundy - 3 December 2014

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