Funeral assurers struggle to comply with minimum Prescribed Asset ratio

Funeral assurers struggle to comply with minimum Prescribed Asset ratio

…as profit before tax fall 70.63%

HARARE – The Funeral Assurance sector’s profit before tax in the first quarter of 2019 declined by 70.63% from $1.97 million recorded in the comparable period last year to $580 000 due to an increase in operating expenses as the environment is characterised by inflationary pressures.

During the quarter, operating expenses which includes administration and management rose 32.20% to $5.9 million from $4.46 million reported in the previous period and claims incurred went up 30.57% to $4.10 million from increase from $3.14 million previously.

“Operational and management expenses remained comparatively high in absolute terms to claims incurred on policies. There is need for the industry to better understand the trends that have been observed where expenses are concerned,” said the Insurance and Pension Commission (IPEC) report for the first quarter 2019.

The Gross Premium Written (GPW) by the 9 registered funeral assurance industry players marginally increased by 6.87% to $11.11 million from $10.39 million in the same period last year. The three main drivers of growth in net premium written were Doves Funeral Assurance Company who registered growth of 14.79%, Moonlight Funeral Assurance with a growth of 3.23% and Vineyard Funeral Assurance Company who registered growth of 36.37%. On the other hand, 3 funeral assurers registered negative growth varying from a negative 3% to a negative 16%.

“The increase in GPW was attributed to an increase in new business that was written within the individual life and corporate business space, as people and corporates strive to provide a decent burial for their loved ones and employees respectively,” IPEC stated.

Funeral assurance players struggled in growing their books as evidenced by the relatively insignificant increase in the GPW during the quarter when compared with life assurance players, who wrote funeral assurance business worth $37. 01 million during the same period.

“This was more than three times the business written by the nine dedicated funeral assurers. The presence of life assurers within the funeral assurance space has affected industry players as one life assurer increased their market share in-terms of GPW for funeral business by 10.94% to 78.82%” it said.

Individual business continues to be the dominant business line for the funeral assurance industry, accounting for 60% of GPW with corporate business accounting for the remainder.

The industry regulator highlighted that 5 out of 9 funeral assurance players reported capital positions below the stipulated minimum capital requirement of $2.5 million based on their unaudited financials as at 31 March 2019. Meanwhile, the Commission has engaged all players to submit capital positions with regards to Statutory Instrument (SI) 95 of 2017.

“It has been observed that industry players continue to report capital levels that include assets, which may not be available to meet liabilities should they be faced with an adverse claims experience.”

The unadjusted capital position for funeral assurance players ranged from $550 000 to $17.08 million.

Funeral assurer’s assets base slightly increased by 0.97% from $76.57 million as at December 31, 2018 to $77.31 million.

“The asset movement experienced was due to changes in the macro- economic environment as players moved from charging United States Dollars to Real Time Gross Settlement (RTGS) Dollar and removal of the 1:1 parity between RTGS and USD by the monetary authorities,” IPEC stated.

The effect of such changes was noticeable as a 9% increase was observed on property investments. Also, there was bear market experience on the Zimbabwe Stock Exchange as equities were down 8% from $2.72 million as at December 31, 2018 to $.,10 million during the quarter. However, the impact of the bear run, did not have a significant impact on the assets held by funeral assurers, as 2.00% was invested on the equities market.

As previously highlighted in the last quarterly report, IPEC encouraged funeral assurers to revise their asset portfolio so as to match their liabilities, considering that a number of players are writing policies with cash benefit components.

“Such a mismatch would negatively affect the liquidity position, should there be an upsurge in the claims experience.”

IPEC noted that all funeral assurers were non–compliant with the minimum Prescribed Asset (PA) ratio of 10% as announced in the 2019 National Budget Statement as only 1.62 % of total adjusted assets were invested in PA. Industry investments in PA status declined by 9.8% from $1.39 million as at December 31, 2018 to $1.25 million. However, the Statutory Instrument that compels industry to adhere to the new prescribed limits is still to be published.

Total technical liabilities increased by 5.23% to $20.5 million during the quarter from $19.47 million as at December 31, 2018. IPEC said funeral assurers are required to relook at their reserving policies and methodologies by applying sound insurance and actuarial principles.

The number of policies written increased by 19.18%, whilst the sum assured increased by 19.63% from 351 000 policies with a total sum assured of $188.85 million in the same period last year to 417 000 policies with total sum insured of $225.93 million for the comparable period in 2019 largely due to the new business that was written during the quarter under review.