Funeral, life assurers retain much risk

ZIMBABWE’S funeral and life assurers’ uptake of reassurance remains low, raising concerns of high risk retention and insolvency, an industry regulator has said.
The Insurance and Pensions Commission’s (Ipec) most recent reports show that life assurers reassured premiums worth $10 million from a gross premium of $505 million during the nine months to September 2019, while only “one out of eight funeral assurers had reassurance arrangements in place as a risk management tool”.
“The commission cannot underscore enough the need for assurers to have reassurance arrangements so as to better manage the risks that they are exposed to,” the regulator said.
“Furthermore, reassurance increases the amount of available capital, thereby allowing assurers to write more business”.
The commission said it would continue to urge industry players to be prudent and set retention levels that “are in line with the adequacy and appropriateness of their assets so as to minimise the risk of insolvency in times of stress”.
“In the same vein, players should put in place robust risk management systems that enable them to effectively manage their risks and ensure safety of policyholder funds,” Ipec added.
The statutory body, however, pointed out that life assurers’ reassurance ratio of 1,98 percent can partly be explained by the fact that a significant portion of the industry’s gross premium written was derived from fund business and funeral assurance business, which it says are not usually reassured.
“In respect of fund business the assurer carries no risk and therefore reassurance is not required while limits on most funeral assurance policies are usually low resulting in most life assurers not seeking reassurance”.
This comes as Ipec has for long called on the two subsectors to cede more risk through reassurance.
The regulator’s reports from as far back as 2015, show that life and funeral assurers have skimped on reassurance for a long time.
On the other hand, it is a different story in the short-term insurance subsector, where the average retention ratio declined from 63,62 percent to 45,26 percent during the nine months ended September 30, 2019.
“This indicates a general reduction in risk appetite of insurers in the market hence increased uptake of reinsurance,” Ipec said.
The regulator said retention ratios for individual short-term insurers ranged from 12,52 percent to 100 percent.
Meanwhile, Ipec says reassurers are now relying on recurring business.
Composite reassurers reported an asset base of $97,38 million in respect of life business as at September 30, 2019, indicating a nominal growth of only 25 percent from June and implying a huge loss in real terms. 2019.

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