Insurance brokers record declining profitability in Q1 2017
Insurance24 Reporter
HARARE, Insurance brokers wrote $24.09 million in business for the quarter ended 31 March 2017, accounting for 35.31% of the total Gross Premium Written (GPW) for non-life insurers, however, was 2.02% lower than 24.59 mln written for the same period in 2016.
According to the Insurance and Pensions Commission (IPEC) first quarter 2017 non-life report, net brokerage commission declined 2.78% to $4.17 mln from $4.29 mln last year same quarter.
The total commission translated to an industry average commission rate of 17.33% for the quarter ended 31 March 2017, a marginal decrease from the 17.46% reported in the first quarter of 2016.
In terms of earnings, Insurance brokers reported a 19.44% decrease in total profit after tax from $0.39 million to $0.31 million for the quarter ended 31 March 2017.
This was mainly due to an increase of 11.43% in commission paid and a decrease in other income by 10.27% for the quarter compared to the March 2016 quarter.
The IPEC report said that the industry average return on equity (ROE) and return on assets (ROA) also decreased from 4.18% and 1.42% as at 31 March 2016 to 2.89% and 1.15% respectively.
During the quarter, two insurance brokers namely, Rainbow Insurance Brokers and Ambassador Insurance Brokers reported capital positions which were below $100,000 and the capital positions for the insurance brokers ranged from $ 14,272 to $1.42 million.
The asset base for insurance brokers marginally increased from $27.14 million as at 31 March 2016 to $27.18 million as at 31 March 2017 and this was mainly attributable to a growth in investments from $0.66 million to $1.28 million reported as at 31 March 2016 and 31 March 2017 respectively.
The asset base for insurance brokers was skewed towards property, premium debtors as well as cash and cash equivalents which accounted for more than 51% of the total assets.
During the quarter under review, Minerva Risk Solutions, Marsh Insurance Brokers Zimbabwe and HRIB were the market leaders in terms of both business written as well as brokerage income, with combined market shares of 43.96% and 44.17% respectively.
In terms of total assets, Minerva Risk Solutions, Marsh Insurance Brokers, Progressive Insurance Brokers and HRIB were the market leaders.
On other hand, Reinsurance brokers wrote $17.18 million gross premium for the quarter reflecting a decrease of 11.73% from the $19.46 million reported for the March 2016 quarter.
The business generated by reinsurance brokers accounted for 52.69% of the total gross premium written by non-life reinsurers.
“This indicates that the business of non-life reinsurers is also broker driven.” The industry average commission ratio for reinsurance brokers was 21.18% for the quarter reflecting a decrease from 25.02% reported for the comparative period in 2016.
The total profit after tax for reinsurance brokers increased by 5.3% from $261,263 to $275,111 for the quarter and the growth in profit after tax was a result of a 5.62% increase in net brokerage income coupled with a 32.92% reduction in commission payments for the quarter.
Notwithstanding the above-mentioned increase in profit after tax, the industry average return on equity (ROE) decreased from 8.75% as at 31 March 2016 to 8.67% as at 31 March 2017, while return on assets (ROA) increased from and 1.01% as at 31 March 2016 to 1.16% for the period under review.
All the reinsurance brokers reported capital positions which were above $100,000 for the quarter.
Meanwhile, the overall non-life insurance sector recorded a 60% increase in aggregate profit after tax to $3.83 mln in the first quarter of the year and this was mainly due to an increase in net premium written of $2.93 million and a decline in operating expenses from $12.7million for the same quarter in the prior year to $12.3 million in Q1 2017.
As a result the industry average return on assets and return on equity increased from 1.25 percent and 2.89 percent for Q1 last year to 1.83 percent and 3.98 percent, respectively, for the quarter under review.
Total liquid assets for the non-life insurance industry amounted to $70.71 million during the first quarter, representing a 3.96 percent increase from $68.01 million that was reported in the same quarter last year.
According to the Report, the volume of business written by the non-life insurance industry in terms of Gross Premium Written increased by 2 percent from $66.59 million to $68.22 million, mainly driven by a 14 percent growth in motor insurance business in the first quarter of 2017 as compared to Q1 2016.
“The business generated by non-life insurers during the quarter ended 31 March 2017 was largely skewed towards two business classes which are motor and fire insurance, generating 63.74 percent of total gross premium written. This is typical of most developing countries were insurance penetration ratios are still low”, said IPEC in the report.
All non-life insurance companies’ capital positions were compliant with the minimum capital requirement of $1.5 million during the quarter. However, the report noted that the reported capital positions do not account for the stipulated non-admissible assets.
The non-life insurance industry also reported an industry average solvency margin of 76.18 percent in the first quarter, a slight increase compared to last year’s 71.77%. The solvency margins were above the prescribed minimum of 25 percent.
Total assets also increased by 12.87 percent to $221.38 mln, mainly driven by major increases in equities and the reinsurance’s share of outstanding claims which increased by 70.56 percent and 45.41 percent, respectively.
However, the Commission expressed concern on the significance of the proportion of total assets of 36 percent being held in fixed assets and premium debtors.
Elsewhere, the non-life reinsurance companies’ total profit after tax decreased by 20.7% to $3.03 mln in the first quarter, due to an increase in net incurred claims by 44.27 percent to $5.59 million. The volume of business written by non-life reinsurers shrank 8% to $32.61 mln.
