Baobab Re and FML accounts for 85% of Reinsurers premium income in Q1 2017

Baobab Re and FML accounts for 85% of Reinsurers premium income in Q1 2017

Insurance24 Reporter

HARARE, Reinsurers reported a negative growth of 23% during the first quarter to 31 March 2017 following a decline in business written to $1.12 mln compared to $1.44 mln same period in 2016.

The decline according to IPEC’s Q1 Life Assurance report is attributable to the continued predominance of non-risk products in the industry namely investment business, retirement annuity policy but also low uptake of policy at risk.

The report added that slow growth of whole life; endowment policies and such policy with life cover now explain the general high retention by life assurance companies.

During the quarter, Baobab Re and FML Re controlled 85% of the total premium income at $686 000 and $270 000 respectively. Baobab Re had a market share of 61% while FM Re had 24%.

As at 31 March 2017, there were four (4) life reinsurers namely Baobab Re, Grand Re, FBC Re and FM Re with Grande Re and FBC Re accounting for 6% and 9% of share of the market in that order.

During the quarter under review, total costs for reinsurers reduced by 33% from $1.7 mln in March 2016 to the current $1.1 mln and this was mainly due to a 60% reduction in claims from the previous reported quarter.

For the period under review, FM Re and Grand Reinsurance are undercapitalised. However, the players reported a current ratio of 184% reflecting decrease from 200% the previous year and a capital to liability ratio of 149%, which reflected an increase from 123% though there is capacity to meet current obligations on demand.

All life reassures are fully compliant with the current minimum capital requirement of S$2 mln.  The total assets for the life re-assurers grew by 5% from $35 million in 2016 to $37 million.

“This was mainly due to improved performance in the stock market and revaluation of properties and trend by players to invest in near-liquid assets such as prescribed assets, cash and other investments,” Ipec said.

Meanwhile, IPEC said the life insurance sector generally showed signs of resilience and stability given the challenging operating environment.

It said the Life Assurance industry was compliant with the minimum capital requirement of $2 million for both direct assurers and life re-insurers.

“The Commission continues to encourage players to be prepared for the introduction of the new minimum capital requirements to be implemented in the year 2018,” says the report.

During the period, premium income reduced from $88 million in 2016 to the current $82 million. Claim payments were $44 million from the previous $47 million.

Total costs grew by 2% to the current $68 million due to higher claims and administration expenses. Resultantly, the technical profit fell from $21 million to the current $14 million.

The total assets grew by 10% from US$1,5 billion as at March 2016 to the current US$ 1, 659 billion and this was attributable to increased uptake of equities and prescribed assets.

For the period under review, recurring business contributed 84% of total business whilst the balance was new business and the Commission encourages innovation by sector players in line with the micro insurance strategy.

In terms of business composition by class of product, fund business, funeral assurance and group life assurance business contributed 88% to premium income.

For the quarter under review, four players namely FML, Old Mutual, Zimnat and Nyaradzo have a combined market share of 88% making the industry more of an oligopoly.

Reported claims aged statistics showed that some players reported claims in excess of 121 days whilst the majority had claims creditors aged in excess of the 30 day period.

In terms of the Insurance Act (Chapter 24:07) it is a serious offence for players to fail to pay legitimate claims which warrants licence withdrawal and the Commission expects life insurers to pay legitimate claims within 14 days after a claim is lodged and 48 hours for funeral business.

On Earnings, the life assurance sector recorded an aggregate net profit of $14 million for the quarter ended 31 March 2017, representing a 33% decline from $21 million in the comparative period in 2016.

“This was due to high claims incurred and business expenses. As a result, the combined ratio increased from 76% to close at 83% for the current reporting period,” the report said.

On the Life Assurance assets composition, Equities and properties constitute 62% of the life industry total assets and the Commission encourages players to be prudent in their asset spread strategies in order to manage investment risk.