Insurance firms in new solvency regime test runs
PHILLIMON MHLANGA
The Insurance and Pensions Commission (IPEC) has directed insurance companies to do test-runs for the new solvency regime up to the end of the year, Business Times can report.
IPEC launched the new solvency regime, the Zimbabwe Integrated Capital and Risk Project (ZICARP), three months ago.
IPEC commissioner Grace Muradzikwa said the test runs are meant to ensure that players are on track to implement the new solvency regime.
Muradzikwa said the insurance companies would then be required to submit ZICARP reports from the first quarter of next year.
“The industry is undertaking a number of key projects. One of them is ZICARP, where we have transitioned to risk-based supervision. Currently the sector is on test runs up to the end of the year,” Muradzikwa said at the launch of the 2021 Insurance and Pensions Journalists Mentorship Programme organised by IPEC and National Social Security Authority which was held virtually on Friday last week.
ZICARP, Muradzikwa said, aims to improve the safety and soundness of the insurance companies as well as enhancing protection for policyholders.
It is expected to capacitate insurers to withstand any risk they get exposed to as it requires them to have capital aligned to the risk they carry unlike the one-size-fits-all approach which was in place.
Life assurers were required to hold a minimum capital threshold of ZWL$75m, short-term assurers ZWL$37.5m, and funeral assurers ZWL$62.50m.
But, the launch of ZICARP in June this year meant that the sector is moving away from an unscientific determined capital to one which is related to risks insurers carry.
ZICARP also forms part of an early warning system with a supervisory ladder of intervention that enables IPEC to timely take necessary measures in the interest of policyholders.
The framework also enables orderly exit of insolvent insurance companies from the market and improves confidence in the insurance sector.
It also promotes standardisation across the country’s insurance market and alignment to international regimes.
ZICARP considers the overall solvency needs taking into account the specific risk profile, approved risk tolerance limits and the business strategy undertaking.
It will also align local insurance practices with international best practice.
Under the new framework, insurers will be required to adequately disclose material information to policyholders including mechanisms to keep them well informed and educated about insurance products, claims and complaint handling procedures.
They must also disclose all issues of noncompliance with the Insurance Act, regulations, Money Laundering and Proceeds of Crimes Act and other applicable laws.
These include violations relating to the capital adequacy ratios below the prudential minimum thresholds, prescribed assets ratios below the statutory limits, noncompliance with the minimum corporate governance standards as laid out in the Insurance Act or regulations.
The introduction of new solvency regime comes at a time when Zimbabwe’s insurance sector is in dire straits emanating from low confidence after policyholders lost more than US$3bn after dollarisation of the economy in 2009.
The loss was attributable to bad investment decisions and excessive recurrent expenditures by insurers, which was eroded by decade long hyperinflation and low activity in the economy, according to a report by a Commission of Inquiry set up by former President Robert Mugabe in 2015, to look into the conversion of insurance and pensions values from the Zimbabwe dollar to the United States dollars.
The industry is also battling to regain confidence after players in the sector failed to honour their obligation.
