Life Assurers profitability lowers in 2017 on increased claims…..Gross Premium up 6%… Old Mutual Life and Nyaradzo account for 72% of total net premium income
By Insurance24
HARARE, The life sector’s profitability in 2017 decreased 56% from $127.33 million in 2016 to $55.9 million by 31 December 2017 largely as a result of total costs which went up 42% from $219.38 million prior year 2016 to $312.0 million in 2017.
According to the Insurance and Pensions Commission report for the 4th quarter 2017, the insurance sector remained stable due to an improvement in the micro-economic and social environment in the country.
The life assurance industry was made up of 11 direct life assurance companies, 5 composite reassurance companies and 1613 individual agents during the period under review.
The life sector’s total net claims increased from $148.6 million as at 31 December 2016 to $197.9 million as at 31 December 2017.
Due to the growth in claims ratio, the combined ratio for life assurance companies increased by 22% from 63% in 2016 to the current 85%
The industry total assets grew by 35% from $1.84 billion as at 31 December 2016 to $2.48 billion as at 31 December 2017.This growth was largely due to favourable performances in the fixed properties and equities markets which grew by 7% and 138% respectively over the quarter.
Investments in prescribed assets for both life assurance companies and life reassurers rose by 77% from $171 million as at 31 December 2016 to $304 million as at 31 December 2017 and, 8 of 11 licensed life companies were capitalised and complied with minimum capital requirements.
“The Commission will further engage such players to ensure parity with the statutory instrument 95 of 2017.
The average liquidity ratio for the industry stood at 331% implying that the industry has sufficient assets to meet claims and other contractual obligations when they fall due.
The capital to liability ratio was at 188% reflecting a growth of 117% from the previous 72%. Life Report -31 DECEMBER 2017 6 1.10 Total gross premium written for the industry maintained an upward trajectory increasing from $348 million reported last year to $368 million for the year ended 31 December 2017.
Business composition
The life assurance sector wrote a gross premium of $366 million for the year ended 31 December 2017, a 6% increase from $347 million realised in the prior year. 3.2 This growth was mainly driven by an increase in business written for endowment and pure endowment policies which recorded growth rate of 67% and 46% respectively which reflect improved confidence in the life assurance sector.
However, growth in business written was slowed down by a negative 24% growth in group life assurance business which moved from $52.5 million as at 31 December 2016 to $40 million as at 31 December 2017. 3.4 Though there is a general outcry in terms of pension payouts emanating from conversion of funds in 2009 when the economy dollarized, there was a notable increase of 7% in Fund business. This increase in Fund business may be pointing to increase in confidence levels from the general public on the matters relating to pension affairs.
Though employee benefits continue to dominate individual life business, the growth rate of 15% in individual life business recorded during 2017 was higher than a marginal 1% increase in employee benefits recorded during the same period.
Out of the total business written by the industry of $366 million or 78% was derived from recurring business and the balance was generated from new business.
Notwithstanding that new business constituted a smaller percentage of the business written during the reporting period, there was a positive growth rate of 1% in terms of this category of business which was mainly driven by a 6% increase in new business written for employee benefits.
Market Share
About 72% of the net premium income reported for the year ended 31 December 2017 was generated by two life assurers with the rest of the business being shared amongst the remaining nine (9) life assurers.
Old Mutual Life’s share was at 64%, Nyaradzo Life Assurance at 26% and First Mutual Life at 10%. However, the Commission requires all players to ensure that their premiums are actuarially determined to adequately sustain the industry players in view of the current challenges in the investment markets.
Furthermore, insurers are discouraged from rate undercutting for the sake of increasing their market share as this may compromise the development and maintenance of an adequate insurance fund required in terms of the Insurance Act [Chapter 24:07].
Capitalisation and Solvency
In terms of Statutory Instrument 95 of 2017, the current minimum regulatory capital for primary life assurers is $5 million and for composite insurers is $7.5 million based on adjusted assets and liabilities as prescribed in the Statutory Instrument.
The total industry net assets or shareholder funds based on unadjusted assets and liabilities amounted to $457 million as at 31 December 2017, a growth of 4% from $439 million in 2016. As at the reporting date, the unadjusted capital positions for life assurance players ranged from $2.1 million to $272 million and only 3 out of 11 primary life assurers were non-compliant with the minimum capital requirement of $5 million.
However, it is imperative to note that the capitalization levels for all primary life assurers stated in this report are based on their reported assets and liabilities as at 31 December 2017. These figures were not adjusted in terms of Statutory Instrument 95 of 2017 as the information that is needed in adjusting the assets and liabilities were not readily available during the preparation of this report.
The Commission has scheduled a capital verification exercise that will be conducted during this year to establish the capitalization levels of individual assurers in terms of the aforementioned statutory instrument.
Based on unadjusted assets and liabilities the capital to liability ratio or solvency ratio as at 31 December 2017 for the primary life assurers ranged between from 14 percent to 789 percent with the industry average being 23 percent.
Asset mix and quality
The total assets for the industry grew by 35% from $1.8 billion as at 31 December 2016 to $2.5 billion as at 31 December 2017. The growth in industry assets was mainly driven by a 138% increase in the value of equities which could be attributed to the bull-run on the Zimbabwe Stock Exchange.
There was a pronounced decrease in money market instruments and other investments which could have been necessitated by industry players reallocating their assets towards value-preserving assets such as equities and fixed properties.
Investments in equities as a percentage of total investment assets grew from 27% as at 31 December 2016 to 48% as at 31 December 2017. This growth may be attributable to the appreciation in the value of equities as well as reallocation from other investment vehicles into quoted equities.
There was a notable increase of 78% in prescribed asset investments from $169 million as at 31 December 2016 to $301 million as at 31 December 2017. 6.7 The average industry’s investment into prescribed assets stood at 12.32% as at the reporting date which is quite commendable.
However, some institutions were below the minimum threshold of 7.5% which is required as investment into prescribed assets. Such players should put in place measures to ensure compliance with the minimum prescribed asset ratio on an ongoing basis to avoid being penalized.
As at 31 December 2017, long term assets comprising of fixed properties and equities for the industry constituted 69% of the total investment assets. Such an asset allocation reflects the general nature of the liabilities for the sector which are also long term in nature.
Notwithstanding, individual insurers should constantly and consistently realign their asset portfolio to match their liabilities.
Reinsurance
As indicated, the primary life assurers wrote $366 million in gross premium during the year ended 31 December 2017. 7.2 However, during the period under review, the primary life assurers ceded about $4.8 million which is 1.3% of the total gross premium written and retaining 98.7% of the business written.
This retention level for 2017 is more than the retention level for the year ended 2016 which stood at 98.3% and there was a general increase in retention level for individual companies with most of the primary life assurers retaining about 99% of the risk.
As part of the capital and risk management, insurers are encouraged to consider reducing their retention levels especially in view of the fact that some of the institutions are inadequately capitalized.
Earnings 8.1
Total NPW for the industry was $361 million as at 31 December 2017, a 6% increase from $341 million reported in the prior year. 8.2 On the other hand, total costs stood at $305 million as at reporting date a 3.74% increase in total industry costs from $294 million for the comparative period in 2016.
Of these total costs, about $194 million which translate to around 64% of the total costs was towards payment of insurance claims. The industry reported a 7.4% increase in management and administration expenses.
There was a marginal increase in the combined ratio from 63% as at 31 December 2016 to 85% as at 31 December 2017. 8.6 Accordingly, the underwriting profit for the industry decreased by about 56% from $125.76 million as at 31 December 2016 to $55.83 million as at 31 December 2017.
Liquidity
Liquid assets mainly comprising of money market and cash decreased by 10% from $343 million as at 31 December 2016 to $309 million as at 31 December 2017.
Industry liquidity ratio (current ratio) improved drastically from 24% as at 31 December 2016 to 267% as at 31 December 2017 implying that the industry had adequate current assets to cover its current liabilities.
Claims Aged Analysis
Notwithstanding a favorable industry current ratio, the industry reported outstanding claims of $8.1 million as at the reporting date of which $1.2 million were aged more than 121 days. The Commission therefore expects players to pay legitimate claims on time and as per the policy conditions. 9.5 The diagram below shows claims age analysis as at 31 December 2017.
