Debtors remain a major credit risk management concern, IPEC

Premium debtors that continue to increase remain a major credit risk management concern for short term insurers and would require urgent attention.

According to the short-term industry report by the Insurance and Pensions Commission (IPEC) for the year 2022, the debtors constitute 22 percent of industry total assets having increased 635 percent to $23,66 billion in 2022 from $3,22 billion the year earlier.

For the year under review, total assets for short-term insurers increased by 428 percent to $105,77 billion compared to $20,03 billion reported as at 31 December 2021.

IPEC said the continued undesirable increase in premium debtors remains a credit risk management concern that requires urgent attention by insurers hence insurers should move to operationalise the No Premium No Cover self-regulation as a stop-gap measure.

“Industry players are encouraged to operationalise this as the Commission continues to engage relevant authorities for the approval and gazetting of the No Premium No Cover Policy regulations to address the challenge of premium debtors,” it said.

In terms of composition of the industry’s assets for the period, premium debtors and investment property were the two major asset classes accounting for 43 percent of total assets.

Investment property alone constituted 21 percent against a limit of 10 percent while premium debtors and other assets contributed 22 percent and 12 percent respectively against a limit of 5 percent in violation of Circular 2 of 2013.

“Short-term insurance players are encouraged to structure their investment portfolios in ways that enable not only the preservation of policyholder value, but also promote a balanced investment mix in line with the Commission’s investment limits and asset liability profiles,” the regulator said.

Investments in prescribed assets increased by 1,226 percent from $0,38 billion as at 31 December 2021 to $5,11 billion as at 31 December 2022.

According to IPEC, despite the increase in prescribed asset investments, only four of the twenty short-term insurers were compliant with the minimum prescribed asset ratio of 10 percent.

“Compliance with prescribed asset requirements remains very low. To ensure compliance with prescribed asset requirements, the commission will be escalating regulatory measures in line with Statutory Instrument 206 of 2019,” said the insurance and pensions regulator.

The industry’s total gross premium written (GPW) by short-term insurers increased by 441 percent in nominal terms from $19,19 billion in 2021 to $103,87 billion during the comparative period in 2022.

IPEC said the growth is mainly attributable to insurance premiums tracking inflation developments and in terms of real growth, all the lines of business experienced positive real growth.

During the period under review, motor and fire insurance maintained their dominance as the major sources of business, contributing a combined 62 percent of the GPW during the year 2022 although this is a decline from 66 percent recorded during the comparative period in 2021.

IPEC said the continued dominance of motor insurance as a mandatory class of insurance business calls for concerted efforts by all stakeholders to address legacy issues militating against confidence in the insurance industry as well as demystify insurance as an input as opposed to an expense to business operations.

Industry gross premium written in foreign currency for the twelve months under review was US$143,85 million, having increased by 42 percent from US$101,48 million reported in 2021.

In terms of capitalization, all 20 insurers reported capital positions that were above the minimum capital requirement of $37,5 million as at 31 December 2022.

IPEC said the reported capital positions were computed without accounting for non-admissible assets as stipulated in Statutory Instrument 95 of 2017.

The regulator urged insurers to adequately prepare for the risk-based capital regime, which will be implemented under the auspices of the Zimbabwe Integrating Capital & Risk Programme (ZICARP) in 2023.-ebusinessweekly