Monday, September 01, 2014

Insurance players on course . . .

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TendaibitiZIMBABWE’S direct short-term insurers could be on course to

meeting the revised mining capital requirements announced by Finance minister Tendai Biti last November, but a looming crisis could hit non-life insurance players following deterioration of the asset book, an official report has shown.

Biti raised capital levels for the sector in a bid to boost underwriting capacity and strengthen the sector.

In its third quarter report on short-term insurance players, the Insurance and Pension Commission (IPEC) said the players were on course to meet the June deadline to partially raise at least half of the $1,5 million required by the regulator.

Full compliance with the minimum regulatory requirements is required by June 2014.

Despite being on course, the commission warned that revaluation reserves, which contributed the bulk of the capital for the short-term insurance players, was not sustainable when the country is experiencing a slowdown in economic growth.

“As at September 30 2012, only six (6) insurers reported capital levels which were below 50% of the minimum capital requirement which is $750 000.”

“This implies that, barring any erosion of capital, the majority of the insurers are on course to comply with the June 30 2013 deadline,” reads the sector report for the period ending September 30 2012.

The total capital base for direct short-term insurers according to IPEC was skewed towards share premium, which contributed 30,58% of the same, followed by revaluation and other reserves that constituted 27,57%.

“Revaluation reserves may not be sustainable especially when the market is volatile and this may bring to question the permanence of that proportion of capital attributable to revaluation reserves,” said IPEC.

The short-term insurance industry average solvency ratio was 53,27% as at September 30 2012, compared with 83,57% reported as at June 30 2012.

The sector’s total assets decreased to $130 million from $140,22 million as at  June 30 2012 largely driven by a decline in current assets.

IPEC warned that decline in current assets was not sustainable for short-term insurers.

Current assets declined to $56,53 during the period under review from $64,84 million recorded in June last year.

“The decline in current assets was mainly attributable to reduction in premium receivable from $41,33 million as at June 30 2012 to $29,64 million as at September 30 2012. The shrinkage of the direct short-term insurers’ balance sheets shown by the decrease in total assets is not in line with the reported increases in business volumes and this might be a red flag,” the IPEC report added.