Zimbabwe’s funeral assurance companies are taking on extensive levels of risk by failing to secure reassurance arrangements, especially in view of declining profits, increasing costs and poor compliance levels.
In its latest report for the second quarter (2020) sector regulator, the Insurance and Pensions Commission (IPEC), raised a red-flag over the anomaly.
“All funeral assurers did not have any reassurance arrangement (s) in place for the six months ended 30 June 2020.
“The commission continues to urge funeral assurers to have reassurance arrangements. This risk management tool is important in improving capacity levels in the sector especially where issues of under capitalisation emanating from the deteriorating capital positions and the need to manage risks such as mortality, investment and operational risks are concerned,” said IPEC.
“Reassurance also increases the amount of capital available as it would allow funeral assurers to write more funeral business and be able to withstand increased pressure from the life assurance business.
“Reassurance arrangements will also assist funeral assurers to comply with minimum capital requirements through issuance of guarantees by re-assurers in line with the provisions of Statutory Instrument 95 of 2017.”
Funeral assurers in the country continue to face viability problems with a jump in expenses over the quarter to June 30, 2020 worsening their prospects.
According to latest Insurance and Pensions Commission (IPEC) numbers, the expense ratio for the industry increased from 61,95 percent during the period ended 30
June 2019 to 67,76 percent for the comparative period in 2020. The expense ratio is the insurance industry standard for measuring insurer efficiency and profitability.
“The increase in the expense ratio indicates that more financial resources were deployed towards expenses as compared to 2019,” said the regulator.
“In line with the increase in expense ratio, the real profit before tax declined from $3,6 million in 2019 to $0, 708 million during the comparative period in 2020.”
The weaker profitability also came down to reduced business over the quarter under review.
Statistics from the IPEC report show that the number of policies written by the dedicated funeral assurers decreased by a significant 41,44 percent from 236 648 policies for the six months ended 30 June 2019 to 138,580 polices for the six months ended 30 June 2020.
Resultantly, the funeral assurance sector’s inflation adjusted gross written premium (GPW) decreased by 45,63 percent from $12, 393 million for the six months ended 30 June 2019 to $6, 738 million for the six months ended 30 June 2020.
“This decrease was attributable to dwindling disposable incomes because of the prevailing harsh economic environment, which resulted in the number of lapsed funeral policies increasing during the period under review,” attributed IPEC.
But beyond the inflationary pressures and high operating costs, the sector is also facing stiff competition from life assurers.
Over the quarter to June 30, 2020, funeral assurers managed to write just 10, 35 percent of the $546,45 million total funeral business recorded in both the funeral sector and the life assurance sector.
Total technical liabilities for the funeral assurance sector significantly increased by 689,9 percent from $28,57 million as at 31 March 2020 to $225,6 million as at 30 June 2020.
“The significant increase in technical liabilities is attributable to the adoption of actuarial recommendations by funeral assurers,” noted the regulator.
“The adoption of the actuarial recommendations was in response to the commission’s recommendations for funeral assurers to engage their actuaries in quantifying their actuarial liabilities to reflect their risk exposure.”
On a positive note, funeral assurers’ total assets increased by 30,20 percent from $465,1 million as at 31 March 2020 to $605, 6 million as at 30 June 2020, attributable to “an increase in accounts receivables.”
And as at the end of the second quarter, just one out of the seven funeral assurers was compliant with the regulatory minimum capital requirement of $62,5 million.
However, IPEC said the non-compliant entities have submitted capitalisation road-maps, which are at different stages of implementation, with the capital positions for funeral assurers currently ranging from $3,42 million to $75,97 million.