The country’s life assurance sector suffered a major setback in terms of profitability on the back of increased costs and claims for the year ended 31 December 2017.
According to the Insurance and Pensions Commission (IPEC) report, the life sector registered a 56 percent decline in profitability to US$55,9 million for the 12 months ended 31 December 2017, down from US$127,3 million in 2016.
The decline was on the back of a significant increase in the life sector’s total net claims, which increased by 33,17 percent to US$197,9 million as at December 2017 from $148,6 million prior year comparative.
Operating costs also witnessed an upward trend with total cost increasing by 42 percent to US$219,4 million from $312 million prior year comparative.
Commenting on the costs, IPEC said: “Given the rise in administrative and management costs for insurance companies, individual players are expected to put in place measures that contain such costs within reasonable and acceptable thresholds. This will ensure sustainable profits for the industry in the long term.”
The sector, however, still experienced some marginal growth in terms of premiums with total gross premium written for the industry maintaining an upward trajectory after increasing to US$368 million for the year up 5,7 percent from US$348 million reported prior year.
IPEC says the life insurance industry should consider new markets such as informal and low-income sectors, which is in line with the financial inclusion thrust and the micro insurance framework that was recently adopted by the Commission.
More growth was, however, experienced on the asset side with the industry’s total assets growing by 35 percent to US$2,48 billion from US$1,84 billion for the comparative prior year.
IPEC says the growth in assets was largely due to favourable performances in the fixed properties and equities markets, which grew by 7 percent and 138 percent respectively in the last quarter of the year 2017.
This is in line with the phenomenal growth that was recorded on the equities market in 2017 when the market rallied.
Investments in equities as a percentage of total investment assets grew from 27 percent as at December 31, 2016 to 48 percent as at December 31, 2017.
“This growth may be attributable to the appreciation in the value of equities as well as re-allocation from other investment vehicles into quoted equities,” reads the IPEC report.
Other investment options, however, did not perform well as there was a pronounced decrease in money market instruments and other investments “which could have been necessitated by industry players re-allocating their assets towards value-preserving assets such as equities and fixed properties.”
As at December 31 2017, long term assets comprising of fixed properties and equities for the industry constituted 69 percent of the total investment assets.
The period also saw the industry’s appetite for prescribed assets grow with investments in prescribed assets for both life assurance companies and life re-assurers rising by 77 percent to US$304 million from US$171 million as at December 31 2016.
Prescribed assets are bonds or securities issued by the Government, local government, quasi government organisations or any other bond that may be accorded the prescribed asset status. Insurance companies can invest up to 40 percent of total fund’s assets in prescribed assets.
The average industry’s investment into prescribed assets stood at 12,32 percent, as at the reporting date which, according to IPEC, is quite commendable.
However, some institutions were below the minimum threshold of 7,5 percent 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 penalised,” said IPEC.
Commenting on the state of the life insurance sector, IPEC said the sector remained stable during the period under review due to an improvement in the micro-economic and social environment in the country.
This follows President Mnangagwa’s thrust to push for economic growth and development since coming into office last November. In 2017, the life assurance industry was made up of 11 direct life assurance companies, five composite reassurance companies and 1613 individual agents.
As at December 31 2017, eight of 11 licensed life companies were capitalised and complied with minimum capital requirements, according to IPEC.
In terms of Statutory Instrument 95 of 2017, the current minimum regulatory capital for primary life assurers is US$5 million and while it is US$7,5 million for composite insurers, based on adjusted assets and liabilities as prescribed in the Statutory Instrument.
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