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Compliance deficit blights insurers

Melody Chikono

THE Insurance and Pensions Commission (Ipec) is concerned by the low level of compliance with statutory requirements by some entities in the industry, especially on issues pertaining to prescribed assets, minimum capital requirements, quarterly and annual returns and statutory fees.

Analysts have in the past pointed out that the economic situation coupled with hyperinflation, low disposable income and high cost of living have made insurance a luxury. This has had an impact on the insurers’ compliance to regulatory requirements.

There has also been concern by players in the industry over the non-performance of prescribed assets.

The half year reports by Ipec show that although there has been a slight improvement in the capitalisation of the industry when compared to prior periods, prescribed assets remained a major challenge.

The commission said it is closely monitoring implementation of the compliance plans by the sector players.

In the life sector, players continued to struggle with meeting the required prescribed asset ratio as inflation induced growth in other assets continued to outstrip the growth in prescribed assets.

As at June 30, 2020, the average prescribed assets ratio for life assurers and life reassurers stood at 9,24% and 0,24% respectively.

Only one short-term insurance player and one reinsurer were compliant with the minimum prescribed asset ratio of 10% as at June 30, 2020 while funeral assures’ compliance with prescribed assets declined to 0,02% as at June 30, 2020 from 0,04% as at June 30, 2019.

“The commission has, however, noted an improvement of compliance with minimum capital requirements, whilst most entities have remained non-compliant with the minimum threshold of prescribed assets of 10%. The commission has also noted that most entities are not compliant with our risk management and corporate governance directive, especially with regards to board composition and skills and skills diversity. The compliance function within the insurance sector enhances regulatory oversight creating a device to detect non-compliance and enable development of measures that ensure compliance in the sector.” Ipec said.

In the pensions sector, notwithstanding the increase in amounts invested in prescribed assets, the ratio of 7,11% was below the regulatory minimum of 20%.

Currently, the commission is working with the industry to ensure that there are value-preserving prescribed assets in the market, which industry can subscribe to.

When it comes to capitalisation, one out of the seven funeral assurers was compliant with the regulatory minimum capital requirement of ZW$62,50 million as prescribed in Statutory Instrument 59 of 2020.

Ipec pointed out that the failure to comply with the minimum capital requirements by the majority of funeral assurers emanated from an increase in technical liabilities in line with actuarial recommendations to adjust for future policyholders’ benefits in line with product specifications, and the need to meet policyholders’ reasonable expectations.

In addition, funeral assurers did not have significant investments in equities, which would have been appropriate asset class that could have also hedged against inflation during the period.

As at June 30, 2020, six insurance brokers reported capital positions that were below the required minimum of ZW$1 500 000.

The capital positions for insurance brokers ranged from negative ZW$33,37 million to positive ZW$36,48 million.

Non-compliant brokers are expected to submit their compliance roadmaps to the commission for evaluation in order to ensure conformity with the minimum capital requirements in line with Statutory Instrument 59 of 2020.

Two out of the seven registered reinsurance brokers reported capital positions which were below minimum capital requirement of ZW $1,5 million as at June 30, 2020.

However, to ensure compliance, the commission is maximising efforts to ensure efficiency in submission of quarterly and annual returns.

“The insurance sector is encouraged to comply with Statutory Instrument 206 of 2019 and circular 3 of 2019 which requires insurers to draw compliance plans in the event of non-compliance.

Meanwhile, the commission will continue to lobby government for the development and introduction of attractive instruments to ensure the preservation of investor and policyholder funds,” Ipec revealed.

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