Zimbabwe’s life assurance companies are shunning reassurance with the failure to transfer risks over exposing their balance sheets adding uncertainty in an already challenging environment, a new report has shown.
According to official data obtained from the regulator, the Insurance and Pension Commission (IPEC), the average retention ratio for the 11 life assurers in the country was 98,52 percent for the year to December 31, 2019.
This means only less than 2 percent has been deployed to reassurers.
The uncertainty due to risk exposure because of lack of reassurance in the business might result in investors piling out of the sector and might also heavily affect the policyholders, according to industry experts.
“This indicates low reassurance by the sector which is mainly attributable to the dominance of pension fund business,” IPEC said.
“Life assurance players should however continuously assess their risk capacity and transfer all excess risk to Reassurers to ensure that their balance sheets are not over exposed.”
The sector which has 11 assurance players is dominated by Old Mutual, Nyaradzo and First Mutual in terms of Gross Premium Written (GPW) with the trio controlling a combined market share of 79,04 percent. The other eight entities –CBZ Life, Econet Life, ZB Life, Zimnat, Evolution, Heritage and Fidelity Life—controls the remaining 20,96 percent and reported combined GPW of ZWL$426,05 million for the year to December 31,2018, according to IPEC’s latest report released last week.
This was a 16,41 percent growth from ZWL$366m reported in the previous year.
The growth was mainly driven by non-traditional life assurance products, which are pension fund business and funeral assurance business.
On the other hand, the five reassurers in the sector, reported a GPW amounting to ZWL$9,12m during the year to December 31, 2018, representing an 18,25 percent growth from ZWL$7,71m reported in 2017.
The sector also comprise of 1 502 life agents.
Total industry assets for life assurers and assets supporting life reassurance amounted to ZWL$3,6bn during the reviewed period, representing a 6,4 percent growth from the ZWL$2,8bn reported in the previous year.
Fair value adjustments on equities remained the major driver of growth in the asset base, buoyed by the bull run on the Zimbabwe Stock Exchange.
The report also shows that investments in prescribed assets by life assurers amounted to ZWL$321,29m and ZWL$3,21m respectively. This translates into industry average prescribed assets ratios for life assurers and composite reassurers of 9,05 percent and 6,48 percent respectively during the reviewed period.
The life assurers’ average prescribed asset ratio was above the minimum required rate of 7,5 percent. This was not the case, however, for reassurers, as their average ratio was below this minimum ration threshold.
The minimum prescribed asset ratio for life assurers has, however, been reviewed to 15 percent from December 2019, up from the current 7,5 percent.
“Players are therefore urged to work towards meeting the new (prescribed asset ratio threshold) requirements,” IPEC said.
Out of the 11 operating life assurance companies, three were not compliant with the minimum capital requirement of ZWL$5m at the end of December 2018, while all operating reassurers in the country -Baobab Re, FBC Re, FM Re, Zep Re and Grand Re-had capital levels above the minimum threshold of ZWL$7,5m.
These are Fidelity Life which had ZWL$2,9m, Evolution (ZWL$3,1m) and Heritage ZWL$706 000.
IPEC said it has engaged the three life assurers, which were undercapitalised and has asked them to put in place comprehensive recapitalisation plans.
“The Commission continues to closely monitor the performance of these entities and their progress towards recapitalisation,” IPEC said.
Life assurance companies reported a total profit after tax but before transfers to policyholder funds of ZWL$1,08bn during the period under review.