PHILLIMON MHLANGA
Nearly 70 percent of Zimbabwe’s funeral assurance companies are struggling to meet the capital levels introduced by the Insurance and Pensions Commission (IPEC), a situation which is troubling the country’s insurance and pension regulator.
This could force them to lose their licences, unless they are able to raise the minimum capital requirement of $2,5 million or merge. In fact, IPEC has suggested the undercapitalised funeral assurance companies, including Ruvimbo, Vineyard, Passion and Foundation should downgrade their licences to microinsurance which requires lower capital threshold.
IPEC’s latest report, which was released yesterday shows that only three funeral assurance companies, namely Doves, Moonlight and First Funeral have met the capital requirement. Doves’ capital level stood at $17,7 million at the end of June this year, while First Funeral and Moonlight had $5,9 million and $4 million respectively. Although Nyaradzo conducts funeral business, it now falls under life assurance category.
“The commission is worried that undercapitalised funeral assurance players have been consistently reporting capital levels below the minimum capital requirement without taking strides to address the situation,” IPEC said.
“The Commission urges undercapitalised players to consider downgrading their licences to microinsurance as this type of licence requires lower capital. Players who meet the minimum capital requirements of $2,5 million were only three out of nine players in the industry as at June 30, 2018.”
The asset base of the funeral assurance industry stood at $71,62 million at the end of June 2018, representing a decrease of 3,35 percent from $74,10 million at the end of March 2018.
IPEC said funeral assurers were required to meet the minimum regulatory capital after adjusting assets and liabilities prescribed by Statutory Instrument 95 of 2017. At the end of June this year, the adjusted capital positions for assurance players ranged from $700 000 to $17,7 million.
IPEC is also worried by the industry’s high management expenses, which it described as “abnormal”.
the regulator indicated that the “large chunk” of premiums were being channelled towards management expenses and commissions instead of settling claims.
“Management expenses for the industry were abnormally high at $9,53 million, representing 45,44 percent of gross written premium,” IPEC said.
“Management expenses coupled with commission accounted for a total of 54,43 percent of total gross written premium. This is worrisome to the commission as it indicates that a large chunk of premiums are being channelled towards management expenses and commissions as opposed to settlement of claims and reserving for future claims. On total cost analysis management expenses constituted 55 percent of total costs while claims constituted 34 percent of total costs. The commission strongly urges players to find lasting solutions on cost rationalisation.”
IPEC is also concerned by the industry’s failure to comply with the provisions of the law with regards to prescribed asset ratio.
The industry’s prescribed asset investments decreased by 7,19 percent to $1,46 million at the end of June this year from $1,57 million reported as at March 31 2018.
This translated to a prescribed asset ratio of 2,04 percent, which is significantly below the required minimum prescribed asset of 7,5 percent.
“This commission is concerned by the industry’s defiance to abide by the provisions of the law with regards to prescribed asset ratio. Corrective measures will be instituted by the commission to enforce compliance,”IPEC said.
Premium debtors for the industry accounted for 15 percent of total assets.
“Players should ensure that their ability to settle claims is not compromised by having less liquid assets such as debtors. This can be achieved through more effective credit control measures.” For the half year to June 30, 2018, the funeral assurance industry reported net profit of $2,86 million representing a 2,47 percent increase from $2,79 million reported for the comparable period in 2017.
Total claims incurred for the half year to June 30, 2018 amounted to $5,83 million, an increase of 15,82 percent from $5,03 million reported in the same period in 2017. Gross written premium for the industry for the half year to June 2018 amounted to $20,97 million, an increase of 6,45 percent from $19,70 million reported for the comparable period in 2017. Uptake of reinsurance remains very low for funeral assurance industry with a retention ratio of 99,96 percent. There seems to be no other risk transfer mechanisms being utilised by funeral assurers to manage risk.
