Short term insurers urged to abide by investment guidelines…..as GWP and investment income drive massive profitability in 2017

    

Short term insurers urged to abide by investment guidelines…..as GWP and investment income drive massive profitability in 2017

By Insurance24

HARARE, The Insurance and Pensions Commission of Zimbabwe (Ipec) says insurers should abide by the investment guidelines in order to sustain their capacity to liquidate their contractual obligations on time.

As reported in the Ipec’s Non-Life quarterly report for Q4, 2017, buoyed by the Bull Run in the stock market, total assets for non-life insurers grew from $197.43 million in 2016 to $235.42 million by December 2017.

This comes as premium debtors remain a huge challenge to the insurance players and the Commission continuously encourage the institutions to devise effective credit control mechanisms as well as designing affordable products in order to manage the increasing debtor’s book.

During 2017, premium debtors constituted bulk of the non-life insurer’s asset base at 19.23%, followed by cash and money markets investments at 18.81%. Equities accounted for 16.81% while fixed assets at 5.05%.

“The considerable growth in total assets was mainly due to a bull-run in equity investments, fixed assets revaluations and premium receivables which constituted 16.82%, 15.04% and 19.24% of the total assets respective,” the report noted.

According to the regulator, during the year under review, the non-life industry recorded growth and resilience despite the challenging environmental pressures.

Gross premium written (GPW) amounted to $236.47 million for the twelve months ended 31 December 2017 compared to $215.97 million reported during the same period in 2016 resulting in a 9.49% growth.

In terms of business distribution, motor and fire insurance remained the key drivers, as the two classes accounted for 63.80% of the total gross premium written during the period under review.

“Players are encouraged to also take advantage of COMESA yellow card business which poses great opportunities if appropriate market sensitization programmes are scaled up.”

During the period under  review, sixteen out of twenty insurers were compliant with the minimum capital level of $2.5 million, whilst four insurers reported capital levels below the required minimum in line with Statutory Instrument 95 of 2017.

“Accordingly, the Commission shall continue to engage such non-compliant player to ensure parity with the law as well as carrying out capital verification exercises in our various onsite inspections,” Ipec said.

The industry average prescribed assets ratio for the non-life insurance companies as at 31 December 2017 was 10.02% which was largely compliant with the minimum requirement of 5% and the Commission says has engaged the non-compliant players with a view to enforce consistency with Statutory Instrument 26 of 2016.

Meanwhile, total profit after tax reported for non-life insurers for 2017 was $33.63 million reflecting a remarkable increase of 250.97% from $13.40 million reported in the comparative period in 2016 with the key driver being increase in Gross Premium Written (GPW) and investment income which grew by 9.49% and 47.60% respectively.

The industry average return on assets (ROA) and return on equity (ROE) improved sharply from 7.06% and 15.35% in the comparative period last year to 15.38% and 30.84% for the period under review.

Total cash and near cash assets in the form of money market and short term prescribed assets decreased from $70.03 million as at 31 December 2016 to $65.48 million as at 31 December 2017. This is evidenced by a marginal decrease in the acid test ratio from 80.37% to 65.67% for the twelve months ended 31 December 2017.

“Such a movement was mainly caused by significant reduction in money market investments from US$30.70 million as at 31 December 2016 to US$20.56 million as at 31 December 2017. The acid test ratio for individual insurers as at 31 December 2017 ranged from 0.66% to 626.32%.”

Old Mutual Insurance Company, Nicoz Diamond Insurance Company and Alliance Insurance Company were the market leaders in terms of GPW with a combined market share of 42.77%.

The market players are encouraged to ensure that the unserved insurance markets are targeted and products that suits their segmental variables are designed. Figure 5 below shows market share in terms of GPW and NPW for the insurers.

In terms of total assets, Old Mutual Insurance Company, Nicoz Diamond Insurance, Alliance Insurance Company and Zimnat Lion Insurance were the market leaders during the period under review, with a combined market share of 54.19% .

The volume of business written by non-life reinsurers rose marginally by 7.86% from US$99.93 million as at 31 December 2016 to US$107.86 million as at 31 December 2017. The increase in GPW for the comparative period was attributed to significant uptake of health and hire purchase insurance policies that rose by 111.48% and 147.85% in the period under review.

Though fire and motor insurance business marginally declined by 4.25% and 4.36% respectively, they remained dominant classes of insurance business as they accounted for over 45% of the total gross premium for the twelve months ended 31 December 2017.