Insurance sector profits slump

HARARE - Zimbabwe's non-life reinsurers reported a 78,64 percent decrease in total profits in the nine months to September 2014 to $1,39 million from $6,50 million, further confirming the deteriorating economic conditions in the country.

A latest report from the Insurance and Pensions Commission (Ipec) revealed that the decrease in profit after tax was mainly attributable to increases in net incurred claims from $18,10 million for the nine months ended September 2013 to $23,79 million for the period under review as well as shrinkage in investment income.

Market experts assert that the tertiary industry, largely reliant on primary industrial activities such as farming and mining as well as manufacturing in the secondary industry, was prone to economic problems that have seen companies laying off thousands of workers or shutting down.

The country’s economy improved significantly following the formation of a government of national unity between President Robert Mugabe’s Zanu PF and the two formations of the MDC in 2009.

The coalition administration went on a charm offensive in a bid to lure the estimated three million Zimbabweans who left at the height of the crisis to return home and rebuild their country.

However, after the controversial landslide election victory by Zanu PF in August 2013, the economy is showing great signs of stress marked by massive company closures, a breakdown in social services and a tight liquidity crunch.

The Zimbabwe Congress of Trade Unions recently said at least 450 workers are being retrenched each week.

In line with the decrease in profit after tax, the industry average return on equity and return on assets decreased significantly from 9,9 percent and 5,43 percent for the nine months ended 30 September 2013 to 2,07 percent and 1,13 percent respectively for the period under review.

Of all the reinsurers, however, only one reinsurer reported losses during the period under review.

The non-life sector also recorded an investment income shrinkage from $2,52 million to $1,46 million, for the nine months ended September 30, 2014, while engineering and motor insurance recorded the highest loss ratios for the period according to a latest regulatory report.

Motor insurance and engineering had the highest loss ratios of 87,33 percent and 68,84 percent. This increase resulted in a combined ratio of 95,99 percent for the nine months ended September 30 2014 reflecting a significant deterioration from 89,62 percent reported in the comparative period in 2013.

The increase in net incurred claims, led to significant deterioration in the industry average loss ratio from 34,43 percent for the nine months ended 30 September 2013 to 42,65 percent for the period under review.

The industry average investment income to net premium written ratio was 1,38 percent for the period under review.

Whilst the ratio indicates that the reinsurers’ income was mainly generated from their core business, which indicates sustainability of income, the low ratio also indicates constrained capacity of reinsurers to augment underwriting income with investment income.

More so, given that the reinsurers’ investment assets recorded a low return of only 0,99 percent.

However, there was a significant change in the value of current assets in excess of current liabilities as shown by a 23,04 percent increase in total working capital from $18,04 million as at  June 30 2014 to $22,20 million as at  September 30 2014.

“Total cash and near cash assets for non-life reinsurers increased from $24.23 million as at 30 June 2014 to $29.30 million as at 30 September 2014,” Ipec said.

FBC Reinsurance Company, ZB Reinsurance Company and FMRE Reinsurance Company contributed 74,51 percent of total cash and near cash assets indicating that liquidity was concentrated in a few reinsurers.

The increase in working capital translated into an improvement in the current ratio from 134,63 percent as at June 30 2014 to 146,85 percent as at  September 30 2014.

Total cash and near cash assets for non-life insurers increased from $42,22 million as at  June 30, 2014 to $45,63 million as at  September 30 2014 owing to increased uptake of money market instruments by the non-life insurers.

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.”

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