IPEC head of risk Josphat Kakwere said the current US$300 000 minimum capital requirement for short term insurance companies and US$500 000 for life companies was very low, significantly lowering entry barriers in the industry which has 26 companies in the short-term insurance sector fighting for a market estimated around US$180 million.
“The current minimum levels which are very low are long overdue for review,” Kakwere said. “IPEC will soon be announcing new levels which will be aligned to each entity’s business volume and simultaneously giving allowance for further expansion.”
Zimnat Life Assurance MD Munyaradzi Javangwe, however, said it was still too early to judge the impact of reviewed levels of minimum capital requirements to the sector as the new charges are yet to be announced.
IPEC proposed mandatory publication of financial statements by all insurance companies.
Javangwe said this was a positive development which would enhance transparency and accountability in the sector.
IPEC said the mandatory publication of results was because insurance companies are public companies by their nature as they have a diversity of stakeholders. Improved disclosure will foster market discipline and improve public confidence in the sector, he said.
“For prospective investors to part with their hard-earned money they need to be convinced that they are putting money in a potentially profitable industry and one of the ways to ascertain profitability is through perusal of financial statements of entities concerned,” Kakwere said.
Kakwere, however, said financial reporting within the insurance industry was dogged by a lot of inconsistencies largely emanating from deviation from international best practices, which he said had compromised the quality of financial statements.
Economic analysts also hailed the move, saying higher disclosures enabled customers to carefully assess the health of their insurance partners before giving them business.
The capital base of an insurance company enables it not only to finance its physical operational infrastructure such as branches and ICT systems, but also provides the risk capital which enables the company to underwrite business.
The higher the capital base, the higher the insurance company is also able to retain the business it originates without having to pass it on to re-insurers.
Kakwere said companies in the sector failing to adhere to International Financial Reporting Standards(IFRS)compromised transparency and compatibility of financial information.
According to Tinayeishe Tawoneyi, IPEC head of finance , there was limited disclosure on core financial statements and notes, which he said raises questions on the transparency in the preparation of the statements. He said the regulation governing the sector IAS 24 (related to party disclosures) was poorly complied with. This relates to disclosure of parent and controlling parties, compensation of management personnel and transaction between related parties.
“In the process of financial reviews by IPEC, some line items on statements of financial position such as investment provisions and accruals are not supported by notes and related accounting policies notes.
“This reduces the quality of financial statements,” he said.
IPEC said it will begin assessing audited financial of companies in the industry to ensure compliance with IFRS .
Tawoneyi said should the companies fail to comply, their financials would be rejected or they could be ordered to redo them.
IPEC proposed an accounting separation system, which would be applied to companies with other business lines which the regulator did not control. Tawoneyi said this was done mainly to protect policy holders’ funds in the event of bankruptcy of the parent company.