admin
Oliver Kazunga Business Reporter
A TOTAL of 12 short-term (non-life) insurance companies have already complied with the minimum capital requirements of $1,5 million by 30 June 2014. According to a quarterly report ending 31 March 2013 released by the Insurance and Pensions Commission (IPEC), there were 23 operational non-life insurance firms.
The commission also indicated that all the short-term insurance firms except one, posted capital levels that were compliant with the regulatory minimum capital requirement of $750 000 by 30 June 2013.
“As at 31 March 2013, all the non-life insurers, except Excellence Insurance Company, reported capital levels which were compliant with the regulatory minimum capital requirement of $750 000 effective 30 June 2013, Excellence Insurance Company reported the lowest capital maintenance ration of 38,22 percent.”
IPEC said given the time frame between 31 March 2013 and 30 June 2014, baring any capital erosion, on average the majority of the insurers were likely to meet the $1,5 million threshold.
“This is also indicated by the industry average capital maintenance ratio of 159,50 percent that was reported as at 31 March 2013 which was significantly above the prudential benchmark of 100 percent,” said IPEC.
IPEC also said all the non-life insurers except Alliance Insurance Company reported solvency margins which were compliant with the minimum solvency margin of 25 percent stipulated in section 24(1a) (ii) of the Insurance Act (Chapter 24:07).
“Alliance Insurance Company which reported a solvency margin of 24,80 percent below the prudential minimum may have assumed risk which is not commensurate with its capital position.”
The average solvency margin for the non-life insurers was 55,50 percent as at 31 March 2013, reflecting an improvement from 50,84 percent reported as at 31 December 2012.
It said some of the non-life direct insurers were more reliant on debt.
“This was evidenced by the said insurers’ leverage ratios which compared unfavourably with the industry averages.”
The average equity to total assets and equity to total liabilities ratios as at 31 March 2013 were 31,66 percent and 46,33 percent respectively. IPEC predicts that more reliance on debt may constrain organic growth of the insurer’s capital given that debt usually results in mandatory charges to the insurer’s profits.
Total assets for the non-life insurers has since the adoption of a multi-currency system in February 2009 continued on an upward trend mainly due to the increase in the volume of business generated over the years.
During the quarter under review, the total assets grew by 13,37 percent from $153,30 million as at 31 December 2012, to $173,79 million as at 31 March 2013.
The growth in total assets was mainly attributable to increases in investments and premium debtors which amounted to $11,46 million and $5,42 million respectively.
“The increase in premium debtors is a red flag to financial soundness given that the premium debtors are not readily available to settle claims and their recoverability maybe in doubt.
“Some insurers have since written off the premium debtors due to failure to recover the same, a situation which resulted in significant reduction of their assets as well as their capital positions.”
The commission has urged insurers to be mindful of the age of their premium debtors and take proactive initiatives to write them off should their recoverability be doubtful.
It said maintaining premium debtors which were long overdue for example; over a period exceeding one year on the books of an insurer gives a false sense of financial soundness.
“The asset base for non-life insurers, as at 31 March 2013 was skewed towards current assets, which contributed 61,88 percent of total assets. This is in line with the short term nature of non-life insurers. However, the current assets were mainly made up of premium debtors which accounted for 43,14 percent,” said IPEC.
Online Reporter