TINASHE MAKICHI
The Insurance and Pensions Commission (IPEC) has directed that individual holding at least 10% stake in an insurance company should not be part of management or sit on the board as part of measures to instill good corporate governance practices, Business Times canreport.
The bulk of the players in the insurance sector are owner managed.
IPEC director for insurance and micro-insurance, Sibongile Siwela, said the move would en hance good governance and risk management frameworks.
“Th e directive on governance and risk management covers all insurance companies, not only funeral assurers. Th e objective of this directive is to outline the minimum IPEC expectations and requirements for shareholders, board and management control functions of an insurer to ensure eff ective governance and risk management framework is in place,” Siwela said.
“In terms of this directive, any individual who holds a significant interest (10%) in an entity shall not sit on the board of directors of the insurance entity or be part of the management.”
Siwela said the commission continues to enforce compliance.
Business Times can report that some executives who hold significant stakes and run the entities were resisting the move.
A player in the funeral assurance industry who requested anonymity said: “I think IPEC is urging succession planning and I am sure timelines are allowed to groom successors.
But also remember this is personal lines insurance and the success or failure of a company cannot be solely based on whether shareholders are running the company or not. Look at companies like NRZ among others headed by MBAs who are not shareholders and those companies are on their knees.”
Two weeks ago, IPEC launched a new solvency regime for the insurance sector, meant to improve the safety and soundness of the country’s insurance companies.
Th e new framework called, the Zimbabwe Integrated Capital and Risk Programme (ZICARP), is also meant to enhance protection for policyholders.
It will also capacitate insurers to withstand any risk they get exposed to as it requires that local insurers have capital aligned to the risk they carry.
Currently, local insurers have a one size fits all regulatory capital requirement, regardless of their size and nature.
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.
The industry regulator wants the sector to move away from an unscientific determined capital to one which is related to risks insurers carry under ZICARP.
This means there will be a need to understand each insurer’s business line and products and identify risks in those activities and assess the quality of risk management, day to day management and oversight.
Basically, it means that the new risk framework aims to address weaknesses of the current capital
regime which unscientifically determine the minimum capital thresholds of insurance companies.
Analysts said the new framework will be responsive to market dynamics.
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.
The new framework considers the overall solvency needs taking into account the specific risk profile, approved risk tolerance limits and the business strategy undertaking.
Consequently, IPEC is implementing Circular 11 of 2016, which requires an effective risk management system to be put in place.
It outlines the governance and risk management requirements for insurance companies.
The circular constitutes key pillar 2 of the ZICARP requirements including the establishment of actuarial functions, internal audit functions and documentation of key risk management framework and policies within insurance companies.
ZICARP will ensure that insurance companies will have sufficient capital to meet obligations.
IPEC Commissioner Grace Muradzikwa said ZICARP will reduce operational surprises and losses.
ZICARP will also align local insurance practices with international best practice.
Muradzikwa said insurance companies have been directed to do parallel runs of ZICARP in this second and third quarter.
She said the insurance firms would then be required to submit ZICARP reports in 2022 onwards.
Zimbabwe’s financial services sector is undergoing some reforms as part of measures to stem abuse of depositors and policyholder funds.
Last year, Finance minister Mthuli Ncube prescribed that loans to insiders should not be more than ZWL$50,000 and financial institutions are compelled to have liquid assets of not less than 30% of the liabilities to the public in sweeping reforms that fool proof the sector from bank failures.
The raft of measures comes at a time when the banking sector is back on its feet following the collapse of financial institutions in the period 2004 to 2009 as monetary authorities wielded the axe to remove the “sick men” of the industry.
Over a dozen banks and asset managers have been closed since the turn of the new millennium.
The collapsed banks had the same ailment— concentrated shareholding, high insider loans which tends to be nonperforming and abuse of depositors’ funds akin to what monetary authorities equate to a declaration of dividend to shareholders using depositors’ funds.
Banks that were swept aside during the banking storm include Ncube’s Barbican, Royal, Trust, Genesis and Interfin, among others.
