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Insurance sector capital requirements set for review

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.

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