Funeral Assurers Breach Regulations

Most funeral assurance firms are in breach of regulatory requirements on prescribed asset investments as it emerged compliance with provisions of the law stands at a measly 2,12 percent instead of the gazetted threshold of 7,50 percent.

The Insurance and Pensions Commission (IPEC) said in its first quarter industry review report released this week that the funeral assurance industry’s average compliance with prescribed assets ratio stood at 2,12 percent as at March 31, 2018.

“This is despite the Commission’s numerous calls for funeral assurers to comply. The Commission is now taking stern measures to enforce compliance by regulated entities,” IPEC said.

There were five (5) undercapitalised funeral assurance industry players as at March 31, 2018. These are the same players which were undercapitalised as at December 31, 2017.

Ex-finance minister Patrick Chinamasa, in his 2016 National Budget, highlighted low levels of compliance to prescribed asset requirements by the insurance and pensions industry.

He said that funeral assurers remained defiant despite repeated calls and, hence, IPEC would enforce compliance measures, including penalties.

This pronouncement came as Government last year proposed to introduce a raft of measures including the review of qualifying assets for calculation of prescribed assets.

According to Statutory Instrument 24 of 2016, insurers were now required to have a prescribed asset ratio of 7,5 percent of the market value of total adjusted assets, including those in funeral assurance business.

The prescribed asset ratio for insurance firms used to be 10 percent, but it has been reduced to 7,5 percent to make compliance for insurance companies easier.

Meanwhile, funeral assurance companies total gross written premium surged 6,91 percent to $10,39 million for the quarter ended 31 March 2018, from $9,72 million reported in the comparative quarter in 2017, figures from the regulator show.

In its 2018 first quarter report for the funeral assurers Insurance Pension Commission (IPEC) said life assurers reported gross written premium, in respect of funeral assurance business, amounting to $37,73 million for the quarter under review.

While gross written premium rose by 6 percent, the funeral assurance industry’s net profit after tax increased marginally by 1 percent from $1,96 million as at March 31. 2017. to $1,97 million for the quarter under review.

The funeral assurers reported a low uptake of reinsurance as evidenced by an industry average retention ratio of 99,95 percent. IPEC urged players to enter into reinsurance arrangements to protect their balance sheets in times of bad claims experience.

The asset base for funeral assurance industry players stood at $74,10 million as at March 31, 2018, reflecting a 3,25 percent increase from $71,70 million reported as at December 31, 2017.

Total profit after tax increased marginally from $1,96 million in the first quarter of 2017 to $1,97 million in 2018. Total claims incurred decreased by 8,08 percent from $2,34 million for the quarter ended on March 31, 2017, to $2,15 million.

As at March 31, 2018, the unadjusted capital positions for assurance players ranged from $0,71 million to $17,13 million. A total of four out of nine assurers reported capital levels that were compliant with the minimum capital requirement of $2,5 million.

The funeral assurance industry’s asset base stood at $74,10 million as at March 31, 2018, reflecting a 3,25 percent increase from $71,77 million that was reported as at December 31, 2017.

As at March 31, 2018, liquid assets that include cash and money market investments constituted 6 percent of total investment assets by funeral assurers. The funeral assurance industry’s average current ratio as at March 31, 2018, stood at 211 percent indicating adequate levels of liquidity to cover short term liabilities.

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