ZimRe Holdings Limited’s (ZHL) short-term insurance subsidiary, SFG Insurance Company, faces closure after recording a huge negative solvency ratio as its capital base fell far short of minimum thresholds required for sound operations, according to a recent Insurance and Pensions Commission (Ipec) report seen by businessdigest.
Report by Staff Writer
The report shows SFG’s capital stood at a negative US$1,13 million at the end of the reporting period, while shareholders’ equity was US$1,12 million. This was a far cry from the minimum US$300 000 required of insurance companies as at June 30 2012.
“Ipec has since engaged SFG with a view to having the institution come up with a viable recapitalisation plan to address its undercapitalisation and the engagements are still ongoing,” reads part of the report.
Last month, Ipec pegged new minimum capital requirements for non-life insurance companies at US$2 million.
SFG’s solvency ratio stood at a negative -97,96% compared to the sector average of 83,57% for short-term insurers as at June 30 2012. The regulatory minimum solvency requirement is 25%.
According to Ipec, the total capital base for direct short-term insurers was skewed towards revaluation and other reserves which accounted for 28,3% of the same, followed by share premium which constituted 28,03%.
In contrast, SFG’s parent company — Baobab-Re — has a huge solvency ratio of 296% despite reporting a loss of US$3,10 million as at end of June 2012.
For the industry as a whole, short-term reinsurers recorded an average combined ratio of 109,6% for the six months ended June 30 2012, compared with 89,7% recorded in the comparative period in 2011, reflecting deterioration in profitability as total expenses exceeded written premiums.
The loss ratio for the industry increased to 43,54% from 29,96%. This is still below the international benchmark of 60%. In line with the deteriorating loss ratio, the total underwriting profits for the reinsurers decreased to a negative US$2,21 million from US$2,70 million last year, implying a decline in the quality of business written.
Baobab-Re remains the leader by market share at 21,15%, followed by FM Re at 19,8%, ZB Re 17,6% and FBC-Re at 13,5%. The market share in terms of gross premium written controlled by the top three reinsurers declined to 58,5% from 66,8% reflecting increased competition in the sector.
Baobab-Re owns 59% of SFG while NICO Holdings Limited holds 49%.