TWO non-life assurance companies face imminent closure after failing to meet regulatory minimum capital thresholds.
According to the Insurance and Pension Commission (Ipec) third quarter report, Tristar Insurance Company and Quality Insurance Company, both short-term insurers, were capitalised to the tune of US$734 056 and US$1,178 million, a far cry from the then prescribed capital requirement of US$1,5 million by end of September 2015.
The future of the two firms is worsened by the decision by treasury to increase minimum capital threshold for short term insurance firms to US$2,5 million from US$1,5 million effective this year.
Capital thresholds for life assurance firms were also raised to US$5 million from US$2 million while capital requirements for funeral assurance firms were raised to US$2,5 million from US$1,5 million.
“All trading non-life insurers, except Quality Insurance Company and Tristar Insurance Company, reported capital positions which were compliant with the minimum capital requirement of US$1,5 million as at 30 September 2015,” said the regulator.
The industry average solvency margin for direct non-life insurers, according to the regulator decreased marginally from 65,25% as at June 30 2015 to 65,22% as at September 30 2015.
Ipec says out of all the operating insurance companies, only Tristar reported a solvency margin which was below the prudential minimum of 25% as at September 30 2015.
The regulator said it implies that Tristar may have retained more business than can be sustained by its financial position, adding that such a situation may result in failure by the insurer to settle insurance claims in full timeously.
Total assets for non-life insurers decreased by 2,58% from US$177,31 million as at June 30 2015 to US$172,91 million as at September 30 2015.
The decrease in total assets was mainly attributable to shrinkages in premium receivables as well as long term investments amounting to US$8,18 million and US$2,7 million respectively.
Total cash and near cash assets continued on a downward trend and amounted to US$52,7 million, reflecting a 2,29% decrease from US$53,94 million during the period under review.
The decrease in cash and near cash assets was mainly driven by the decline in money market investments. The concentration of the total liquid assets for the non-life insurance industry remained a concern with a total of 79,28% being attributable to only six of the operating insurers as at September 30 2015.
The volume of business written by non-life insurers remained largely unchanged with a negligible increase of 0,26% growth in total gross premium written from US$153,2 million reported for the nine months ended September 30 2014 to US$153,6 million for the nine months period ended September 30 2015.
The negligible growth in business volumes can be attributed to the harsh economic challenges currently being experienced in the country.
The volume of business in the nine months to September 30 was generally on an upward trend from 2009 to 2013 before levelling off in 2014 and 2015.
“The business generated by non-life insurers remained mainly skewed towards motor, fire and accident insurance with the three business classes accounting for a total of 81,59% of total gross premium written during the nine months ended 30 September 2015,” Ipec said.
Total profit after tax for non-life insurers tumbled by 58,43% from US$8,79 million for the nine months ended September 30 2014 to US$3,65 million for the comparative period in 2015.
The decrease in total profit after tax mainly emanated from an upsurge in unrealised losses in investments and an increase in net incurred claims which amounted to US$3,52 million and US$3,38 million respectively.
The increase in unrealised losses is mainly owing to the poor performance of the financial markets during the period under review. In line with the decrease in profit after tax, the industry average return on assets from 5,13% to 2,13% whereas return on equity deteriorated from 11,74% to 4,79% during the period under review.
Ipec said non-life insurance sector did not generate significant income from its investments to supplement income from the core business of underwriting. This is evidenced by the ratio of investment income to net premium income which was negative 0,72% for the period under review.
As a result of the increase in net incurred claims, underwriting profits decreased from US$6,67 million for the nine months to September 30 2014 to US$4,74 million for the period under review.