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Insurance players urged to adopt prudent risk practices

THE Insurance and Pensions Commission (Ipec) has called on players in the insurance industry to adopt prudent risk practices through reinsurance in the light of high retention ratios witnessed in the sector last year.


In its third quarter report ended September 2012, the regulatory body noted that the high retention ratios prevalent in the industry were a cause for concern.

“Industry players are hereby reminded to practise prudent risk spreading via reinsurance as today’s premium is tomorrow’s claim. Reinsurance is very critical as a means to manage cash flows and protecting shareholder’s values,” Ipec said.

Retention is the amount of business that an insurance company retains and is calculated based on premiums while reinsurance broadly refers to insurance that an insurance company buys as a safety net.

The major advantage of reinsurance is that the risk of loss is spread so that an excessively huge loss under a single policy does not solely affect one company.

Reinsurance assists insurance companies to increase and finance capacity and stabilise underwriting results.

During the period under review, Altfin reflected 88,5% retention and 11,5% reassurance; CBZ 94% retention and 6% reassurance; Old Mutual 99,7% retention and 0,3% reassurance.

However, Evolution was the only company that reflected 60% reassurance and 40% retention.

The average retention ratio in 2010 in Zimbabwe stood at 40% against an average of 77% for the region and an international standard of 80%, an issue attributed to the size of the balance sheet.

The insurance regulatory body also noted that there was an apparent non-compliance by players in the Life industry to statutorily invest 7,5% of their total assets in prescribed securities.
“Appropriate penalties will be levied to ensure compliance,” the body said.

Life industry asset bases for the third quarter ended September 30 2012 were variously distributed.

Altfin total assets as at June 2012 stood at US$6 092 000, CBZ Life
US$3 673 000, Evolution US$3 255 000, First Mutual Life US$80 038 000 and Old Mutual US$687 080 000.

The short-term insurance industry on average retained 51,39% of the gross premium written during the year to September 30 2012.

“This indicates a marginal increase from 50,15% reported during the comparative period in 2011 which reflects that there was no significant change in the insurers’ risk appetite.

The retention ratios for individual insurers ranged from 26,32% to 93,54%,” Ipec said.

Clarion Insurance Company and KMFS Insurance Company reported the highest retention ratios of 93,54% and 92,44% respectively. These retention levels were observed to be beyond the capacities of these insurers, implying that these insurers were overstretching their capital positions.

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