Insurance sector overtraded

companies are chasing a paltry US$150 million in annual premiums.

This represents an average gross income of US$5 million for each player. After reinsurance costs, this hardly leaves enough income for administration, claims dividends and receiving costs.
An insurance expert, Mr David Birch, the FBC Reinsurance Limited chairman,told the Institute of Bankers of Zimbabwe Winter School, currently underway here, that 80 percent of the premium income is controlled by a few companies.

“Again, 80 percent is probably controlled by the top five insurers, meaning that there is little for the very small players much like the situation in the banking sector,” he sad.
This development could see some insurance companies folding or merging with bigger companies who can underwrite meaningful business.

The insurance penetration rate in Zimbabwe is currently at 3 percent. The country’s insurance sector wilted during the hyper inflationary period due to a turbulent economic climate and poor disposable incomes.
At its peak in 2001 the insurance penetration ratio hovered around 6 percent. Factors leading to the drop in the ratio included increased under insurance, policy lapses, insurance cover reductions and policy cancellation at the height of the country’s economic crisis in 2008.

The sector has been ravaged by a protracted liquidity crunch stemming from the dollarisation of the economy in 2009.
Last year the Insurance Pension Commission deregistered at least 74 companies that were all technically unsound.

A majority of the companies failed to raise the statutory minimum capital required to operate, which at present is pegged at US$300 000 for short-term and non-life insurers, US$400 000 for reinsurance and funeral assurers and US$500 000 for life assurers.

Technical liabilities, compromising debt and premiums and claims also surpassed both balance sheet values and owner’s capital.
Analysts say the mushrooming of small companies could be controlled by raising the required minimum capital requirements from the current US$300 000 for short-term insurance.

However, there has been little recovery in the insurance sector as disposal incomes have increased though at a small scale and people have realised the need to insure their business, property and their health.
Mr Birch who presented a paper on management risk in the current financial environment added that the country’s financial sector faces credit risk, which is the risk of loss arising from a borrower who does not make payments as promised.

The sector faces liquidity risk emanating from a security for asset that cannot be traded quickly in the market to either prevent loss or make the required profit.
There is also market risk, which arises when the value of a portfolio, that is either an investment or a trading one, decreases due to the change in value of market risk factors and operational risk which arises from the execution of the company’s business function.

Mr Birch said Zimbabwe has an acute need for credit way beyond the current capacity of the banking sector, even with the support coming from PTA, Afreximbank and the African Development Bank.