Amended new insurance regulations gazetted

Amended new insurance regulations gazetted

HARARE, Government has gazetted the new insurance regulations on capitalisation of insurance firms which were proposed during the 2016 National Budget.

According to the amended rules, the minimum unencumbered capital for life assurance business, including funeral assurance, will be $5 million. Minimum capital threshold for non-life business is $2 million. The minimum capital thresholds will be $7,5 million for entities involved in life assurance, funeral assurance and non-life insurance business, $5 million for reinsurance and $2 million for life assurance companies, which solely provide funeral assurance services.

According to IPEC’s Q1 2017 reports only three funeral assurers Doves, First Funeral and Moonlight funeral companies were compliant with the $2.5 million minimum capital requirement.

During the same period, all the registered non-life insurance companies reported capital positions which were compliant with the minimum capital requirement of $1.5 million.

Life assurance companies were compliant with the prescribed minimum capital requirement of $2 million. The majority of life assurers are geared towards the proposed new capital requirement effective next year.

Meanwhile, the new regulations will require significant discounting of values of all quoted equities and investments in unquoted or private equity for purposes of calculating compliance with regulatory minimum capital levels.

The regulations gazetted last week may be cited as Insurance (Amendment Regulations, 2017 (Number 19) and amend section 2 (interpretation) of the Insurance Regulations 1989, published in Statutory Instrument 49 of 1989, also referred to as principal regulations.

According to the Insurance (Amendment) Regulations, 2017 (No19), in assessing the eligibility of the capital of an insurer for regulatory purposes, the Insurance and Pensions Commission shall ensure that insurance companies fulfil prescribed features for capital.

“A discount of 20 percent shall be applied on all quoted equities for insurers, non-marketability discount of 20 percent and illiquidity discounts of 30 percent shall be applied on the fair value of all investments in unquoted or private equity,” the regulations say.

Cash and money market instruments, 100 percent of the fair value of assets shall be considered. The value of Government securities, prescribed assets and term deposits will also be considered 100 percent. IPEC, may prescribe discounts for term deposits in line with credit rating of insurers’ counterparties holding the term deposits and where deposits are held with banks under curatorship, such deposits will not be considered for calculating capital.

In terms of properties, the forced sale value will be considered, receivable other than premium debtors shall only be considered if they are aged less than 60 days from due date. Valuation for private and unquoted equities properties shall be conducted by independent professionals.

“The valuation reports for properties shall indicate the market value, replacement cost and the forced sale value, cost per square metre, availability of encumbrance and the name registered in title deeds.

“The capital must be adequate, unencumbered and in a form that allows cushioning of policyholders against unexpected losses timely and the capital must be commensurate with the level of risks assumed by the insurer, which risks include underwriting, credit, market and liquidity risks.

“The capital position of the insurer must be high enough to ensure confidence in the insurance industry by all stakeholders including facultative re-insurers and the public and the capital must be able to provide insurers with financial flexibility to take advantage of growth opportunities and be innovative by providing new products, new services or new distribution channels and the capital must enable the local insurer to retain most of the premium for its net premium account, which facilitates the organic growth of the company, the industry and retention in the country.”

The eligible capital must be substantially permanent, not impose fixed charges such as interest on earnings, must not be borrowed funds, unencumbered, investment must be predominantly assets whose profile matches liabilities and the capital must not be concentrated in one asset class.


Herald/ Insurance24