Short term insurers profit down 12 percent.


Non-life insurers reported total profit after tax of US$5,23 million for the half year ended 30 June 2015

SHORT term insurers reported a 2,92 percent increase in the volume of business written for the half year to June with Gross Premium Written at US$120,31 million due to significant growth in accidents insurance and bonds/guarantees.

According to the Insurance and Pensions Commission interim report, the growth of 2,92 percent compares favourably with the negative 0, 79 percent reported in the same period last year.

Non-life insurers reported total profit after tax of US$5,23 million for the half year ended 30 June 2015, reflecting a 12,05 percent decrease from US$5,95 million reported for the comparative period in 2014. The decrease in total profit after tax was mainly attributable to a US$2,61 million upsurge in net incurred claims coupled with a US$1,22 million increase in operating costs.

The report notes that the industry average return on assets (ROA) and return on equity of (ROE) decreased from 3,37 percent and 8,24 percent for the half year ended 30 June 2014 to 3,01 percent and 6,86 percent respectively, for the period under review. Three insurers reported losses during the period under review

Notwithstanding the decrease in the volume of business generated from motor and fire insurance, these two business classes accounted for a total of 62,14 percent of total GPW during the six months ended 30 June 2015 reflecting a marginal decrease from 64.67% reported for the comparative period in 2014.

Out of all the registered insurance companies, four insurers namely Excellence Insurance
Company, Cell Insurance Company, Tristar Insurance Company and Quality Insurance Company were not compliant with the minimum capital requirement of $1.5 million as at 30 June 2015. Excellence Insurance Company had been suspended from initiating and renewing insurance.

All the insurance companies, except Cell Insurance Company, reported solvency margins which were compliant with the regulatory minimum of 25% stipulated in section 24 of the Insurance Act. “By implication, Cell Insurance Company was overtrading during the half year period under review. Overtrading ends up compromising underwriters’ ability to settle insurance claims in full timeously,” noted IPEC.

The industry average solvency ratio for direct non-life insurers was 65.25% as at 30 June 2015 compared to 68.38% reported as at 31 March 2015. Total assets amounted to $177.312 million, reflecting an 8.44% decrease from $193.66 million reported as at 31 March 2015. The decrease in total assets was mainly attributed to a decline in premium receivable from $47.14 million as at 31 March 2015 to $36.53 million as at 30 June 2015.

“The significant decrease in premium debtors, without a corresponding and compensating increase in other asset classes, such as cash and investments, imply that significant premium receivable were written off or the cash collected from the same was applied directly to meeting expenses such as claims and management expenses.”

IPEC said the decrease in total assets between the first quarter and the second quarter is in tandem with the pattern that has been observed over the years since 2009 and is expected to persist until the end of the third quarter.

The asset base for non-life insurers remained skewed towards cash and cash equivalents as well as premium debtors and properties.

The proportion of total assets attributable to premium debtors of 20.3% was considered too high to enable the asset bases of insurers to generate adequate investment income to supplement underwriting income. The ratio of premium debtors to total assets for individual insurers ranged from nil to 56.77%. The analogy above is also evidenced by the ratio of investment income to net premium written which was very low at 2.37%.

“This is exacerbated by the fact that income generating assets, excluding fixed assets, such as cash and money market investments as well as long term investments accounted for a total of 36.55% of total assets which was considered low.”

On the other hand, IPEC noted that the proportion of total assets attributable to fixed assets was more than the threshold of 10% stipulated in Circular 2 of 2013. The factors raised above may compromise the insurance industry’s ability to match its liabilities with its assets more prudently. Such a situation compromises the ability of insurers to meet their obligations as they fall due, which obligations regrettably include claims.

All non-life insurers remained non-compliant with the prescribed assets ratio. According to the report, the industry average prescribed asset ratio was 1.27% as at 30 June 2015 which was significantly below the minimum requirement of 5%. The number of insurers with investments in prescribed assets
remained at 11. -FinX