THE Insurance and Pensions Commission (Ipec) has hiked the minimum capital threshold for Insurance companies to a maximum of US$3 million from US$300 000, businessdigest has established.
Information gleaned by businessdigest this week shows insurance companies have received letters from the regulator advising them of the new minimum capital levels.
Report by Gamma Mudarikiri
The minimum capital requirements for reinsurance companies were raised to US$3 million from US$400 000, while the same requirements for short-term insurance firms were hiked to US$2 million.
Funeral assurers minimum capital requirements were increased to US$3 million from US$500 000.
Operators are expected to be half-compliant with the new minimum capital requirements by 31 December this year. Full compliance is expected by end of 2013.
An industry official said this week the move was likely to result in mergers of some players in the sector while listed companies would go back to shareholders to raise capital via rights issues and private placements.
The Zimbabwe insurance sector currently has about 26 companies in short-term insurance fighting for a market estimated at around US$180 million.
Another official said the US$300 000 minimum capital requirement was long overdue for review and had triggered a proliferation of insurance operators with a weak balance sheets and low underwriting capacity.
“Players are too many, whereas business is very low as reflected by low technical rates such as insurance rates, insurance density and insurance penetration. The new capital requirements will trim down the number of players and strengthen the sector,” said the official linked to a listed group. He said the new capital requirements would not only enable insurance companies to finance their physical operational infrastructure such as branches and ICT systems, but also provide the risk capital to enable players to underwrite more business.
Ipec early this year proposed mandatory publication of financial statements by all insurance companies, a development the regulator said would enhance transparency and accountability in the sector.
The insurance regulator also said the mandatory publication of results was because insurance companies were public companies as they have a diversity of stakeholders, while improved disclosure would foster market discipline and restore public confidence in the sector which almost crumbled during hyperinflation.
Financial reporting within the insurance industry has been condemned by the regulator as dogged by inconsistencies emanating from deviation from international best practices, resulting in compromised financial statements.
Limited disclosure on core financial statements and notes, Ipec said, raised questions on transparency in the preparation of financial statements as companies continue to breach the regulation governing the sector.
IAS24 relates to disclosure of parent and controlling parties, compensation of management personnel and transaction between related parties.