Brokers struggle to meet minimum capital thresholds
Dorcas Chigodho
HARARE, Zimbabwe’s RE/insurance brokers and funeral assurers are struggling to attain gazetted minimum capital thresholds with the regulator, Ipec, having already demanded their capitalization roadmaps.
End of November 2020, FINANCE minister Mthuli Ncube reviewed minimum capital requirements for the insurance sector, indicating that this was necessitated by the obtaining macro-economic environment.
Short term insurers minimum capital requirements were reviewed upwards to ZW35, 5 million from ZW$2,5 while life will have to meet requirement of ZW$ 75 million from ZW$ 5 million.
Funeral assurers capital requirements were reviewed to ZW $37,5 million from ZW2,5 million while Re-insurance requirements now stands at ZW$ 75 from the current ZW $5 million.
“While the Q1 reports from the regulator show that the life re/assures were compliant with the minimum capital thresholds, the brokers from both reinsurance and insurance sections as well as the funeral assures struggled with the commission having demanded that they submit their capitalization roadmaps.”
Adequate capitalization is crucial for resilience and policyholder protection in times of financial distress including high claims experience.
The introduction of currency reforms which culminated in the introduction the Zimbabwe dollar as the mono-currency for the country in June 2019, necessitated the review of the Minimum Capital Requirements (MCR) of US$5 million and re-alignment to the new monetary developments in the country.
Eleven (11) out of the thirty-one (31) insurance brokers reported capital positions below the required minimum of ZWL$1.5 million as at March 31 2020 with the capital positions for the lowest and highest insurance brokers ranging from negative ZWL$13.46 million to ZWL$28.20 million.
Non-compliant brokers were expected to meet the new MCR by 30 June 2020. On the reinsurance side, three reinsurance brokers reported capital positions below the Minimum Capital Requirement of ZWL$1.5 million as at 31 March 2020.
However Ipec said the non-compliant entities had since submitted recapitalization plans which are being closely monitored by the Commission to ensure that they fully comply with the minimum capital requirements.
During the same period, only two out of eight funeral assurers reported capital positions above the regulatory minimum capital requirement of ZWL$62.50 million as stipulated in Statutory Instrument 59 of 2020 based on their unaudited financials as at 31 March 2020.
The remaining six (6) funeral assurers had also either submitted capitalization plans or advised the Commission that their boards are looking into the matter.
“ The Commission continues to note with concern that a number of funeral assurers continue to report capital levels which include assets such as software and other intangible assets that may not be available to fulfill policyholder obligations, Capital positions for funeral assurers ranged from ZWL$14.6 million to ZWL$ 275.93 million as at 31 March 2020,” said IPEc.
The situation is however on the bright side for life assurers who as at 31 March 2020, 9 out of 12 primary life assurers reported capital positions that were compliant with the MCR of ZWL$75 million.
“Non-compliant entities have been directed to develop capitalization compliance roadmaps which the Commission is closely monitoring to ensure compliance. In this regard, non-compliant players are encouraged to follow through capitalization roadmaps to ensure compliance,” said IPEC.
During the same period 2 registered life reassures reported capital positions which were compliant with the new minimum capital requirement however the reported capital positions were not adjusted for inadmissible assets as required by Statutory Instrument (SI) 95 of 2017.
Sixteen (16) out of the eighteen (18) short-term insurers reported capital positions which were above ZWL$37.5 million as at 31 March 2020 with the two non-compliant entities in terms of MCR being CBZ Insurance and Clarion Insurance.
The reported capital positions were, however, computed without accounting for non-admissible assets as stipulated in Statutory Instrument 95 of 2017.
As at 31, March 2020, all the registered short-term reinsurers except one player reported capital positions which were above the minimum capital requirement of ZWL$75 million.
“However, these reported capital positions were not adjusted in line with the provisions of Statutory Instrument (SI) 95 of 2017, which accounts for non-permissible assets for the purposes of Minimum Capital Requirements 31 March 2020,” said Ipec.
