Funeral Assurers net premium up 11% in Q3 2017, as only 3 firms meet the $2.5 mln minimum capital requirement

Funeral Assurers net premium up 11% in Q3 2017, as only 3 firms meet the $2.5 mln minimum capital requirement

By Insurance24

HARARE, Net Premium Written for Funeral Assurers for the quarter ended 30 September 2017 (Q3) grew 11% to $125.36 million compared to same period last year, the Insurance and Pensions Commission (Ipec) says in its quarterly report.

Life assurers accounted for 76.24 percent of the net written premium while the remaining 23.76 percent was written by 9 direct funeral assurance companies.

“Growth was mainly driven by a 14 percent increase in premium written by Life Assurers and a 14 percent increase in premium written by Doves Funeral Assurance Company. 5 companies namely Orchid, First Funeral, Moonlight, Passion and Ruvimbo funeral Assurance Company reported a decrease in net written premium ranging from negative 60 percent to negative 2 percent,” IPEC said.

The number of Funeral assurers operating in the market remained at 9 by end of the third quarter as there were no new registrations or cancellations.

Gross written premium for the period grew by 11 percent compared with the same period last year from $112.55 million to $125.36 million and this continued growth shows the resilience of the funeral industry despite challenges being faced in the economy.

Claims reported for the period under review decreased by 8 percent compared to the same period last year.  IPEC said Funeral assurance claims are urgent in nature hence assurers should expedite all claims settlement.

An increase in expense ratio by 29 percent resulted in a decrease in technical profits by 43 percent as compared to the same period last year from $4.87 million to $2.78 million and this is despite the increase in net premium income by 11 percent.

Total assets for the Funeral assurance industry increased by 8 percent for the period under review compared to the same period last year from $60.29 million to $65.28 million.

“Besides the growth in asset base, the amount invested in prescribed asset by the funeral assurance industry remains low, at $0.87 million which is 1.34 percent and this is below the required level of 7.5 percent. Despite an increase of 273 percent in the amount invested in prescribed assets, players should make plans to comply.”

IPEC said the capital base of the funeral assurance industry as at 30 September 2017 stood at $38.74 million representing a 17 percent increase from $30.02 million reported as at 30 September 2016.

Statutory Instrument 95 of 2017 was gazeted on 25 August 2017, increasing the minimum capital requirements to $2.5 million for funeral assurers. Only 3 players are compliant with this new capital requirement and there is need for funeral assurers to fully comply.

The main areas of non-compliance being prescribed asset ratio, minimum capital requirement, timely payment of levies, timely submission of returns and structure of investments.

       

 Retention

Players in the funeral assurance industry continue to retain 100 percent of their risks with no reinsurance arrangements in place. Players are encouraged to have reinsurance arrangements in place to protect them against catastrophic events.

Update on operations

As at 30 September 2017 funeral assurers had 103 operational branches manned by a total of 368 staff. The use of unregistered agents is a violation of the Insurance Act [Chapter 24:07] and players should make sure that their agents are registered with the Commission. Players are also encouraged to develop a diversity of distribution channels for micro-insurance products.

Business Composition.

For the period under review 56 percent of the funeral assurance industry’s net written premium came from individual life while the remaining 44 percent came from corporate business. Volumes in new business continue to be low, accounting for only 5 percent of the industry net written premium while the remaining 95 percent came from recurring business. Players are encouraged to embrace micro insurance by developing products that appeal to the lower end of the market so as to increase their new business.

Claims Aged Analysis

As at 30 September 2017, total outstanding claims amounted to $34,000. Of these claims an amount of $16,000 was for claims aged from 0 to 30 days. Claims payment is an important element of funeral assurance operations and players should make sure that claims are paid early so as not to inconvenience the bereaved families. The Commission will constantly monitor both the efficiency of assurers in discharging claims and their ability to settle claims payment and take corrective measure if need be.

Assets Quality

The funeral assurance industry assets stood at USD65.4 million as at 30 September 2017. These assets are composed of fixed property, money market securities, cash and other investments. On average non-interest generating assets accounted for 84.43 percent of the industry total assets (see appendix 1A). This shows a concentration of the industry’s assets in non-interest generating less liquid investments. The funeral assurance industry’s premium debtors to total assets ratio was 14.6 percent which is high compared to 4.6 percent obtained on 30 June 2017. Players should contain premium debtors so as to maintain a healthy asset structure.

Capitalisation and Solvency

As at 30 September 2017, only 3 funeral assurers had capital levels above the new minimum capital requirement of US2.5 million. The average capital maintenance ratio for the funeral assurance industry ranged from 27.52 percent to 891.56 percent with the industry average being 172.18 percent. Players are required to comply with the minimum capital requirements as a matter of urgency. Compliance increases safety of the industry and thereby enhancing protection of policyholders interests.

Shareholders equity on average financed up to 59.42 percent of the funeral assurance industry assets as shown by the equity to total assets ratio of 59.42 percent (see appendix 1A). The industry equity to total assets ratio ranged from 21.65 percent to 81.84 percent indicating a healthy balance between debt and equity capital. High debt to equity ratio results in policyholder funds being mortgaged to debt thereby reducing the safety of the policyholders interest.

According to IPEC, the Funeral assurance industry should strive to comply with all regulatory requirements as they form the core of their business activities. Players should also align their business models with the new developments arising in the market and position themselves to benefit from the national financial inclusion strategy through microinsurance. Players are also urged to make sure that they comply with all other regulatory issues pertaining to their business conduct.