Funeral assures record negative working capital in Q2
Staff writer
HARARE, The latest Insurance and Pensions Commission report paints a bleak picture on the future of funeral assurers who have been hit hard by the ongoing liquidity crisis, recording a negative working capital during Q2 2019.
The country has been struggling with liquidity challenges after a government ZW$400 million mop-up left markets dry.
In the report Ipec noted that that the industry had a negative working capital position of $ 18,12 million .
Negative working capital (the surplus of current liabilities over the current assets) is regarded as bad as it disturbs the business operating cycle of a company more or less consistently.
Normally, companies with negative working capital will be using the money of creditor to finance current assets as well as a part of fixed assets but buying fixed assets with this money can pose some financial trouble anytime.
Ipec noted the during the period, the funeral assurers current liabilities stood at $22,52 million being supported by $4,40 worth of current assets.
This comes as these assurers are also struggling to comply with the minimum prescribed asset ratio of 10% with only 0, 35% of their total assets invested in PA.
The Industry’s investments in PA decreased 23, 30% from $1, 25 million as at 31 March 2019 to $961,000 as at 30 June 2019.
Regardless of the struggles of the sector, government in its 2019 national budget reviewed upwards the PA ratio requirement form 7, 5% to 10 %.
During the period, only three funeral assurers accounted for 90% of GPW written as at 30 June 2019 while the remaining six writing just 10 % the industry’s GPW while four out of the nine funeral assurers reported capital positions below the regulatory minimum of $2,50 million.
Funeral assurers’ total assets increased by 133,01% from $77,31 million as at 31 March 2019 to $180,14 million as at 30 June 2019 with the noticeable asset movement attributable to revaluations done on properties due to currency reforms.
This then resulted in funeral assurers holding approximately 80.00% of their asset portfolio in immovable assets.
These gains however are not much in real terms. Overall profit before tax for the funeral assurance sector increased by 1,1174.96% from $1,97 million for the six months ended 30 June 2018bto $25,20 million for the six months ended 30 June 2019 driven by
fair value adjustments by one funeral assurer on its properties, which resulted in an upward trajectory of profit before tax.
“Management Expenses and commissions remain high when compared to claims as they accounted for 60.85% of total costs, whilst gross claims accounted for 39,15% of total costs. Total assets increased by 133.01% from $77,31 million as at 31 March 2019 to $180,14 million as at 30 June 2019. The increase in the asset base was based on
revaluations conducted by funeral assurers on their properties,” noted
Ipec
