Ipec defends insurers' capitalisation hike

HARARE - The Insurance and Pension Commission (Ipec) has defended government’s plans to hike insurers’ minimum capital thresholds despite an outcry from industry players.

Last month, Finance minister Patrick Chinamasa indicated in his 2015 National Budget that after having been last revised in 2013, “the (insurers’) minimum capital requirements will further be reviewed upwards.”

He said the move would “improve underwriting capacity and contain insurance business being placed outside the country.”

However, some insurers argued that the plan came at a time most players were experiencing depressed business in the face of a tight liquidity crisis, coupled with waning economic activity.

But Pupurai Togarepi, Ipec’s head of prudential supervision, said that “it does not make much sense for insurers to be complaining about capitalisation requirements.”

“As you all know, insurers must be well-capitalised for the security of clients and the business itself,” he told a Zimbabwe Association of Funeral Assurers (Zafa) meeting yesterday.

“The majority of players are fully-capitalised, we have one who was struggling to capitalise but I am sure that has been taken care of,” he said, adding that the industry was growing impressively with a 30-40 percent annual growth rate.

Ipec is a body governing the operations of Zimbabwe’s insurance and pensions industry.

This comes as last week, Zafa president Edward Gomba, told businessdaily that government had to rethink its proposal as the move may lead to massive retrenchments as insurance firms battle to survive.

Gomba, also chief executive of Ruvimbo Funeral Assurance, said apart from the prevailing liquidity challenges, 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 the 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).

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.

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.

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