Home » General » Short-Term Insurers Profit Declines

SHORT-TERM insurers recorded a 16,2 percent drop in profit after tax during the nine months to September 30, 2014 as volume of business written dropped 14 percent on the back of liquidity challenges coupled with retarded economic growth. Total profit after tax for non-life insurers declined to $8,79 million during the period under review from $10,50 million during the same time last year while Gross Premium Written (GPW) fell to $153,20 million from $153,41 million last year.

As a result the Insurance and Pension Commission said short-term insurers should find ways to increase their volumes.

“Non-life insurers are urged to devise strategies to rejuvenate the business volumes, such as targeting the previously uninsured through micro-insurance, if sustainable growth is to be realised,” IPEC said.

There was also shrinkage in business generated from the majority of business classes although there was some positive growth in others with the fastest growing business being engineering and personal accident that recorded GPW growth of 23,32 percent and 20,62 percent respectively.

The distribution of business written in terms of GPW across different classes of business remained largely unchanged.

The business generated by insurance companies remained skewed towards motor and fire insurance, with the two business classes contributing 63,87 percent of total GPW during the period under review compared to 62,19 percent for the prior period.

Motor insurance business was the dominant source of business accounting for more than 40 percent of total GPW.

“The spread of business across different classes was considered to be fairly balanced and sustainable. While losses from motor insurance are generally of higher frequency and low severity, losses from fire and other business classes are generally of low frequency, and in some instances high severity,” IPEC said.

In terms of capitalisation, IPEC said all registered and operating insurers had met the requirement except for six companies that reported capital positions which were below the minimum regulatory requirement of $1,5 million.

“Engagements with the six insurance companies are ongoing and the commission will communicate with the relevant stakeholders once necessary regulatory measures have been put in place to protect policyholders.

“The nature of the regulatory action will, in addition to the minimum capital requirement, be determined by other factors such as solvency margins, asset quality, liquidity and failure to timorously settle legitimate claims.

“All insurers are required to pro-actively conduct self-assessment of their capital positions in line with Circular 1 of 2014, and take necessary action to ensure compliance with minimum capital requirements,” it said.

All non-life insurance companies reported solvency margins which were above the minimum requirement of 25 percent stipulated in Section 24 of the Insurance Act (Chapter 24:07).

The industry average solvency margin for the period was 68,41 percent compared to 65,50 percent reported as at June 30, 2014.

“However, it should be noted that in terms of the same section, non-life insurers should comply with both the minimum capital requirement of $1.5 million as well as the solvency margin of 25 percent.

“This therefore implies that in terms of assessing compliance with minimum capital requirements, the minimum of $1,5 million takes precedence in this case,” it said.

Total assets for direct non-life insurers declined 2,77 percent from $176,24 million as at June 30, 2014 to $171,37 million during the period.

The decrease was mainly attributed to writing off of premium debtors as well as deferred acquisition costs net of unearned commission reserves (DACUCR) from $40,19 million and $6,93 million as at June 30, 2014 to $33,60 million and $4,13 million as at September 30, 2014 respectively.

Total assets remained skewed towards investments and operating assets and the two asset classes constituted a total of 57,09 percent of total assets.

“There was an improvement, though insignificant, in the proportion of total assets attributable to investments from 39,39 percent as at June 30, 2014 to 41,48 percent as at September 30, 2014. Total investment assets increased from $69,42 million as at June 30, 2014, to $70,37 million as at September 30, 2014,” IPEC said.

Source : The Herald