ZIMBABWE’S macroeconomic challenges have resulted in the country’s primary and secondary industries — including the insurance sector — taking a heavy knock.
The tertiary industry, largely dependent on primary industrial activities such as farming and mining as well as manufacturing in the secondary industry, is susceptible to problems that have seen companies lay off hundreds of thousands of workers or shutting down.
The latest Insurance and Pensions Commission (Ipec) 2014 second quarter short-term non-life insurance report indicates a general slowdown in business written for the first half years between 2010 and 2014.
According to Ipec figures, gross premium written (GPW) grew by US$24 million from the first half of 2010 compared to 2011.
The figures show GPW grew by another US$25 million from the first half of 2011 compared to 2012 before slowing down and growing by US$8,3 million from the first half of 2012 and June 2013.
The GPW decreased marginally from US$117, 82 million for the half year period ended 30 June 2013 to $116,89 million for the half year ended 30 June 2014.
Ipec said although there has been a general upward trend in the volume of business written since 2010, a slowing down in the growth of business written in the non-life insurance sector has generally been witnessed in tandem with the slowing down of growth in the economy at large.
“This could be explained by the fact that in general, the insurance sector usually follows the fortunes of the mainstream economy,” reads the report.
The Ipec report comes after top local insurance expert, Grace Muradzikwa recently told businessdigest that Zimbabwe’s economic slowdown is taking a toll on the insurance industry as companies and individuals, who constitute the insurance industry’s client base have been affected by the poor economic performance.
“As insurance, we follow the fortunes of our clients and when their business is going down we cannot grow,” said Muradzikwa, who is also Nicoz Diamond managing director. “Last year, our industry grew by 7% and it grew by about 5% in the first quarter of this year and I do not see it at 7% in this current year under this environment.”
Ipec said the growth in net premium written (NPW) of 4,74% from US$60,84 million for the half year ended 30 June 2013 to US$63,73 million for the period under review, which is higher than the -0,74% witnessed in GPW shows a reduced uptake of reinsurance services and this could be due to increased risk appetite.
The regulator said the marginal decrease in the volume was mainly attributable to shrinkage in business generated from aviation insurance.
“Motor insurance, which usually records significant growth, witnessed a modest increase in business written of US$0,70 million,” said Ipec.
According to the report, although total assets for non-life insurers have generally been on the upward trend since 2009, there was a 2,92% decline that was reported during the quarter under review to US$176,24 mainly due to the persisting liquidity crunch that has resulted in decreases in premium debtors as well as cash and cash equivalents, with decreases amounting to US$6,25 million and US$4,80 million respectively.
“Total cash and near cash assets for non-life insurers decreased by 8,10% from US$45,94 million as at 31 March 2014 to $42,2 million as at 30 June 2014. The decrease in cash and near cash assets could be in line with the general liquidity problems currently being faced by the economy at large,” reads the report.
“The industry continued to be saddled by challenges emanating from non-collection of cash in respect of some business generated.”
Non-life insurers reported a 19,44% shrinkage in total profit after tax from US$7,38 million for the half year ended 30 June 2013 to US$5,95 million for the half year ended 30 June 2014.
The shrinkage in total profit after tax was mainly attributable to a 10,69% surge in operating expenses from US$21,88 million for the half year ended 30 June 2013 to $24,22 million for the period under review.
For non-life reinsurers, total GPW for the half year ended 30 June 2014 amounted to US$56,25 million, reflecting a 6,72% decrease from US$60,3 million reported for the half year ended 30 June 2013.
The decrease in total GPW has been mainly attributed to shrinkage in business generated from motor as well as engineering insurance.
“The business retained by the reinsurers on their books declined by 10,38% from US$41,82 million for the six months ended 30 June 2013 to US$37,48 million for the half year ended 30 June 2014.
“This implies that the potential for profitability for the reinsurers may have been reduced since retaining less business results in a reduced scope for making profits.”
Ipec said total profit after tax for non-life reinsurers decreased significantly by 87,24% from US$5,62 million for the half year ended 30 June 2013 to US$0,72 million for the half year ended 30 June 2014due to the shrinkage in business written.