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Tough times for insurance firms

More than half of short-term insurers have to increase their capital base to meet the pending $2,5 million minimum capital threshold, latest figures from the Insurance and Pensions Commission (Ipec) have shown.


The current threshold is $1,5 million.

According to the latest report from Ipec, only eight firms out of 21 had surpassed the soon-to-be gazetted new minimum capital requirements in the quarter ended December 31 2015.

The eight companies that are currently compliant with the pending new minimum capital requirement are Old Mutual Insurance Company, Regal Insurance Company, Tristar Insurance Company, Zimnat Lion Insurance Company, Nicoz Diamond Insurance Company, Eagle Insurance Company, CBZ Insurance Company and Alliance Insurance Company.

This means that the remainder have to turn to shareholders for capital injection.

The companies that need to bolster their capital positions include Allied Insurance Company, Cell Insurance Company, Champions Insurance Company, Clarion Insurance Company, Credit Insurance Zimbabwe, Evolution Insurance Company, ECGC and Hamilton Insurance Company. Others include Heritage Insurance Company, Quality Insurance Company, Safel Insurance Company, Sanctuary Insurance Company and THI Insurance (Pvt) Ltd.

In a report for the quarter ended December 31 2015, Ipec said implementation of the forthcoming new minimum capital thresholds would be in phases.

“Going forward, the commission will be assessing compliance to minimum capital requirements subject to consideration of permissible assets as shall be defined in a Statutory Instrument that the commission will gazette in due course. The minimum capital requirements have since been increased to $2,5 million and implementation of the same will be phased,” Ipec said.

Ipec said all the short-term insurers had capital positions above the current minimum capital requirements of $1,5 million.

Ipec said the sector saw a more than 50% drop in profit after tax to $4,62 million on the back of an upsurge in net incurred claims in the insurance sector.

In the same period in 2014, profit after tax was $10,25 million.

Net incurred claims are estimates of the amount of outstanding liabilities for a policy over a given valuation period. It includes all paid claims during the period plus a reasonable estimate of unpaid liabilities

Eagle Insurance managing director Musa Bako said if claims continued growing at a faster rate than premiums, it would mean an increased loss ratio for insurance companies.

“The amount of claims in the insurance sector did increase. If claims go up at a rate faster than the rate premiums go up, the loss ratio goes up. Motor vehicles had the most business but there was a distortion in the value of the vehicles and an increase in claim fraud,” Bako said.

“The lack of investment on the stock exchange made insurance companies incur losses that hit us in the insurance sector.”

An insurance premium is the amount of money that an individual or business must pay for an insurance policy. The premium is considered income by the insurance company once it is earned, and also represents a liability in that the insurer must provide coverage for claims being made against the policy.

Of all the non-life insurance companies, Old Mutual Insurance Company remained the most sound with a capital position of over $18 million, while Nicoz Diamond Insurance Company had $11,14 million as at December 31 2015.

At a recent analyst briefing, Old Mutual Zimbabwe group chief executive officer Jonas Mushosho said its short-term insurer recorded a 16% increase in premium income due to new business acquired to $35,9 million, while the claims ratio grew 6% to 49,6% at the end of 2015 from 47% in 2014.

Insurance companies such as Old Mutual, First Mutual Holdings, Nicoz Diamond Insurance Company and Eagle Insurance among others have been on a drive to increase their clientele from the informal sector to meet these challenges.

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