By  Patience SAGHANA

A total of 74 insurance companies have been shut down by the Zimbabwe’s Insurance and Pensions Commission (IPEC).

IPEC, having shut down 18 firms initially closed 56 additional companies as it intensified a clampdown on technically unsound firms, which began last month with the closure of 18 companies.

The commission spread its net to insurance brokers, life companies and reinsurers thus bring to the number of companies closed down to 74.

IPEC is currently in court with Gallant Insurance Company, which is challenging it’s de-registration.
Insurance Commissioner Marnet Mpofu says the closures are a result of the regulator’s technical assessment of players’ financial strength, ethical practices and capacity to underwrite insurance business, and aim to strengthen the security-giving industry.

A majority of the companies failed to raise the statutory minimum capital required to operate and at present the threshold is $300 000 for short-term and non-life insurers, $400 000 for reinsurers and funeral assurers and $500 000 for life assurers.

Technical liabilities, comprising debts and premiums and claims, also surpassed both balance sheet values and owner’s capital.

“How can they protect policy holders if they can’t raise $300 000 in minimum capital?” an insider said in confidence. “Most of the insurance companies were found to be surviving largely on commissions from reinsurance, which they were taking out of the country.”

For the whole of 2009, Zimbabwe’s short-term insurance industry’s aggregate gross premium written (GPW) amounted to $68 598 180, but net premium income (NPI) was only $27 440 148, and this lifted by less than five players, according to IPEC’s 2009 report on the short-term industry.

Only 10 companies accounted for 88% of the business with 21 contributing just 12%. The risk insured was dominated by the motor vehicle and fire classes.

Technically, the ratio of NPI to GPW shows insurers’ technical ability to retain and cover risk with a low NPI reflecting over-reliance.

“Ceded reinsurance premiums were 59, 82% of the GP income with a retention ratio of 40, 10%. Generally the retention ratio was low as direct insurers’ balance sheet values could not sustain the risk thereby relying more on reinsurers,” IPEC said in its 2009 report on the short-term industry.

The bulk of the business written locally was exported for the purpose of earning commission.
The industry has struggled to retain business in the last 18 months after “dollarisation” eroded disposable incomes and failed to create significant, new insurable risk and this increased competition, which in turn sparked a wave of malpractices.

Meanwhile, IPEC has reregistered Regal and Jupiter insurance firms whose licenses were cancelled after a dispute erupted between the two companies and the Zimbabwe Revenue Authority.