The Insurance and Pensions Commission (Ipec) has urged insurance companies to consider mergers as a way of meeting the revised minimum capital requirements amid indications a number of players will not meet the January 2018 deadline.
BY FIDELITY MHLANGA
According to the new Ipec thresholds, the minimum capital requirement for short-term insurance will be raised from $1,5 million to $2 million and for life insurers it will double to $5 million from $2,5 million.
Ipec commissioner Tendai Karonga told Standardbusiness that they had been advising insurers to consider mergers to meet the requirements.
“Those that are yet to meet the proposed threshold have been asked to work towards meeting these capital levels because the commission does not find joy in de-registering insurance companies,” he said.
“Mergers will also be a viable option for the companies that cannot, on their own, meet the proposed minimum capital requirements.”
Karonga said the minimum capital requirements were raised to protect policy holders.
“The rationale behind increasing the threshold is to increase the capacity of insurers to underwrite business and be able to pay whenever a claim is made,” he said.
“As we have highlighted earlier on, there is need to protect the interests of policyholders by ensuring that the insurance companies have adequate capital to pay when a claim is made.
“This contributes to the stability of the financial system,”
Economic analyst Evonia Muzondo told Standardbusiness that given the tough economic environment, most insurance firms will find it difficult to meet the revised minimum capital requirements.
“Yes, most insurance firms will be under strain as the environment is not conducive to raise capital due to liquidity issues and subdued performance,” she said.
Karonga recently told delegates at a seminar that insurance companies were deploying various unscrupulous tactics such as “fictitious” assets to meet the required capital requirements. “Some questionable assets such as intangible assets, encumbered assets as well as assets not registered in the name of the insurer are being applied as capital by the same insurers,” Karonga said.
Economist Eddie Cross said increasing the minimum capital requirements for insurers will help weed out bogus insurance firms.
“I think it is overdue for the insurance industry to be held to some reasonable level of capital in order to meet their clients’ demands,” he said.
“I am not sure if these new demands are reasonable, but what I do know is that in recent years, the industry has attracted many fly-by-night companies.”
Labour and Economic Development Research Institute of Zimbabwe senior economist Prosper Chitambara said the move will ensure that insurance companies became a buffer against potential risks.
“Probably, there are a lot of risks that could potentially affect insurance companies,” he said. “By increasing the capital requirements the regulator wants to create a buffer against possible risks that would affect companies,” he said.
Muzondo said insurers were fighting for a small cake due to the poor performance of the economy and the competition was forcing them to resort to unorthodox means to survive.
“The environment is tough, it’s expected,” she said. “Insurers are fighting for a small cake, there is cutthroat competition.
“They are doing this to remain afloat, but in the end it will be disastrous as it can undermine the insurer’s ability to meet claims.”