Insurers resist capitalisation hike

HARARE - Government must rethink on its proposal to hike insurers’ minimum capital requirements as the move may lead to massive retrenchments as insurance firms battle to survive, industry players say.

Recently, Finance minister Patrick Chinamasa said after having been last revised in 2013, “the (insurers’) minimum capital requirements will further be reviewed upwards.”

The move, he said in his 2015 national budget, would “improve underwriting capacity and contain insurance business being placed outside the country.”

However, the Insurance Institute of Zimbabwe (IIZ) — a body representing Zimbabwean insurers — argues that the proposed hike will bring more challenges to hard pressed insurance sector players who are already failing to meet current minimum capital thresholds.

Lovemore Gomba, the institute’s president, told businessdaily that the insurance sector has been hit hard by the prevailing liquidity crisis while clients are also struggling to pay premiums.

He said “it will be very unfortunate if government decides to hike the minimum capital requirements again.”

“There is less or low disposable income among population of Zimbabwe resulting in them failing to pay their premiums and most of the policies then become Not Taken Ups (NTUs), lapses and cancelations,” Gomba said, adding that the current situation has led to “the drastic reduction of premium income to the industry.”

“…because of the challenges in our economy, the minimum capital level should remain where it is until the status of the economy improves,” he said

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 were in compliance with the new capital requirements under the new amendments to the Insurance Act (Chapter 24:07).

Chinamasa also said the noncompliant companies had to immediately comply.

“…may 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.

The current requirement for short-term insurers, life re-assurers, funeral assurers and short-term reinsurers is

$1, 5 million, while life offices need $2 million. Prescribed securities need $1 million.

Pupurai Togarepi, Insurance and Pension Commission’s head of prudential supervision said while government had not formally communicated the planned capitalisation hike, “ordinarily it is good for industry, the insuring public and country to have adequately capitalised player.”

“The challenge is getting the capital as some players are yet to fulfill the current requirements,” he added.

Market analysts also say that consumers now view insurance as a luxury due to worsening economic conditions being experienced in Zimbabwe, thus the failure to comply with the stipulated requirements.

Comments (5)

Mr Editor check your details, its Mr Gomera not Gomba, ha whats wrong with you?

UNCLE REAL - 9 December 2014

Mr Editor check your details, its Mr Gomera not Gomba, ha whats wrong with you?

UNCLE REAL - 9 December 2014

Insurance a luxury?? In this day and age, you do that at your own peril. What sane person does not have a life cover under such conditions, what do u dream of leaving your family as a breadwinner?

UNCLE REAL - 9 December 2014

Mr Gomera is right. There is need to consider the current environment when some of these policies are put in place. This move by the ministry and the commission is not in line with ZIMASSET. 1) INDIGINISE: most of the small companies that they want to chop off are wholly indegenous. They need held not harshness. EMPOWER: the move is actually the reverse of empowerment DEVELOP: We are retrogressing. EMPLOY: if more than 300 people are to be unemployed, then we are right off track. The issue of capital is not really the issue here. The move is to protect large insurers. Small insurers can Underwrite any risks through the risk transfer mechanisms in the market i.e Through their treaties, facultative reinsurance, retrocessions etc. IPEC should be more concerned about the soundness of a company ( Solvency, Liquidity etc) as most big insurers have this problem. Some insurers own large buildings which they cannot use to settle claims. And if they fail to comply with the new requirements, should they also be closed down by the due date ? If so there should be no selective application of the law. I hope this small voice will be heard. SMALLY

Smally - 10 December 2014

@ smally The government should proceed with the proposed minimum capital requirements because they protect the consumer from dubious insurers who are not adequately capitalised and offer low premium rates while playing Russian roulette with their customers. Insurance business is about risk transfer from the customer to the insurance company at a mutually acceptable and realistic price called the premium. An insurer's ability (capacity) to underwrite risk is determined by its capitalisation, (before we talk about onward transfer through treaties and facultative reinsurance programmes). Again an insurer's treaty capacity is also determined by its capitalisation and solvency i.e. the availability of cash to buy the reinsurance programmes. It is sad that a lot of people are not aware what the minimum capital requirement of USD1.5 million for short term insurers really means to them simply put : this allows Mhungu Insurance Company to take premium from you and promise to pay for your USD400 000.00 Grange house should it be destroyed by fire. Sounds fair huh? but then they will do the same for a 100 other people who own similar or more expensive or cheaper houses all over the country! We have only mentioned houses but also think cars, buses, tobacco anything! You talk about facultative reinsurance that's just a fancy way of saying insurance companies like Mhungu Insurance Company, Rovambira Insurance Company and Bungumuridzo Insurance Company etc get to share among themselves the premium for your house and should anything happen they will help each other pay! (I deliberately used mazita enyoka the pun is intended!). Solvency and liquidity are secondary indicators and protection mechanisms to capitalisation because capitalisation ensures that the correct people are in the insurance business in the first place.

Ini zvanhu (FIISA) - 11 December 2014

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