Funeral Assurers urged to hedge risk in reinsurance.
…..As retention ratio averages 99,96%
HARARE, Reinsurance uptake by Funeral assurers remain low as evidenced by average retention ratio of 99, 96%, this according to the latest IPEC report for the June quarter for the industry.
The Regulator said this is despite numerous calls by the Commission for industry players to enter into reinsurance arrangements to protect their balance sheets from high claims experience which may occur.
“The Commission continues to encourage players in the funeral assurance industry to arrange tailor made reinsurance solutions with reinsurance companies.
“Funeral assurers should be able to properly manage their business risk as this is fundamental for maintaining good reputation and the survival of the industry players in the long term,” Ipec said.
During the period under review, the funeral assurance industry’s total gross written premium amounted to $20.97 million, representing a 6.45% growth from $19.41 million reported for the same period in 2017.
“The growth in gross written premium reported by the funeral assurance industry was driven by positive growth in gross written premium of 4 players ranging from 2.1% to 28.57%. The remaining players reported negative growth ranging from 2.03 percent to 53.13.”
The regulator noted that Funeral assurers should take advantage of the proliferation of new information and communication technology (ICT) platforms such as mobile transfer systems to develop new distribution channels as a way to increase business.
“Moreso with the increase in competition from life assurers selling the same product, players are encouraged to be competitive in pricing and product structuring,” read the report.
BUSINESS MIX
Business mix for the funeral assurance industry by source was heavily skewed towards individual business which accounted for 54 percent of total gross written premium. The remaining 46 percent of the gross written premium came from corporate business.
“The funeral assurance industry remains heavily reliant in recurring business which accounted for 95 percent of total gross written premium for the period ended 30 June 2018. New business was scarce contributing only 5 percent of total gross written business.”
ASSET BASE
The funeral assurance industry’s asset base experienced a negative growth of 3.35 percent from $74.10 million as at 31 March 2018 to $71.63 million as at 30 June 2018. The asset base for the assurance industry is mainly concentrated in 3 asset classes. These are properties constituting 49 percent, (with operational property constituting 30% and investment property 19%) premium receivables of 15% and intercompany investments of 10% of total assets.
Earnings
Net profit after tax for the funeral assurance industry increased by 2.47 % from $2.79 million reported for the half year ended 30 June 2017 to $2.86 million reported for the half year ended 30 June 2018. 7.2 Notwithstanding the increase in volume of business written by 6.45%, profit after tax increased by only 2.47%. Lower growth in net profit compared to growth in gross written premium of 6.45% was attributable to an increase in total costs of 4.86%. Average return on equity for the industry was 7.96% and return on assets of 3.98% for the half year ended 30 June 2018.
This shows above average levels of profitability, especially taking into account that inflation for the year was predominantly below 2%.
Management expenses for the industry were abnormally high at $9.53 million, representing 45.44% of gross written premium. Management expenses coupled with commission accounted for a total of 54.43% of total gross written premium.
“This is worrisome to the Commission as it indicates that a large chunk of premiums are being channeled towards management expenses and commissions as opposed to settlement of claims and reserving for future claims.”
On total cost analysis management expenses constituted 55% of total costs while claims constituted 34% of total costs. “The Commission strongly urges players to find lasting solutions on cost rationalization,”
Liquidity
Total assets of the funeral assurance industry amounted to $71.62 million as at 30 June 2018. Of these assets 7% of were considered liquid and ready to meet obligations.
Working capital for the industry as at 31 March 2018 was $22.49 million, a decrease from $25.4 million reported on 31 March 2018.
The industry average ratio of liquid assets to total assets remains low at 8%. This may be partly due to the long term nature of industry contractual liabilities which needs long term assets to match them. Nevertheless industry players should have adequate liquidity at each and every point in time to meet claims as and when they fall due.
Market share
Market share for the funeral assurance industry in terms of gross written premium remains concentrated in 3 players who account for 90.31%. The remaining 6 players shared 9.69%.
