Insurance is an important feature of economies and financial systems. Proponents would go as far as to say insurance is pivotal to the growth of economies. The argument does have some merits as insurance allows two important things essential for planning, managing risk and having a say in the future. The Insurance industry has two main segments, Life Assurance and short term insurance. Zimbabwe’s insurance regulator The Insurance and Pensions Commission (IPEC) produces a quarterly report on the state of the industry. Here we will look at the Life assurance sector report and see what we can pick up from the report and what it tells us about the state of things.
Life assurance covers all policies that mature at the end of life. The term assurance is used as cover for a certainty, that all people will die, whereas insurance is the term used for a possible outcome that is not a certainty. So the life assurance sector includes General life Assurance (GLA), Whole Life, Term Cover, Endowments and Funeral assurance or burial policies. The industry also includes Re-insurance which I suppose also requires a little explaining. In its simplest form reinsurance is insurance for insurance companies. They get other companies, and reinsurers to cover their policy risk which is an important feature of the insurance industry as it provides stability against shocks like high claims ratio. It may take the form of reassurance, covering the life assurance policy or reinsurance covering the assurance policy for a period shorter than its term.
12 life assurers, 4 composite reassurers and 1378 agents
The first highlight is the make-up of the life assurance industry it features 12 life assurers (CBZ Life, Doves, Econet Life, Evolution, Fidelity Life, First Mutual Life, Heritage Life, Old Mutual, Nyaradzo Life, Dhaka Life, ZB Life, Zimnat). To complement there are 4 reassurers (Baobab, FBC, First Mutual and Kenyan headquartered ZEP Re).
80% funeral cover
The life assurance segment is dominated by the funeral cover. 79.9% of active assurance policies in the fourth quarter of 2021 were for funeral assurance. General Life assurance policies constituted 13.07% of policies. This is consistent with life on the ground in Zimbabwe, a low-income economy with very little disposable income. The little available money would make funeral cover a necessity while other forms of life cover are luxuries. Zimbabwean dollar-based insurance policies showed an inflation-adjusted growth in Gross Premium Written (GPW) of 139%.
If you know anything about the insurance landscape in Zimbabwe then Nyaradzo’s dominance will not surprise you. We just mentioned that 80% of the policies are the funeral cover and Nyaradzo has risen to become the biggest name in the funeral cover. This gives Nyaradzo 54.19% of the life assurance market share. Unsurprisingly Doves is second with a distant 15.15% of the market share. In terms of USD dollar-denominated policies, Nyaradzo again wrote the bulk of the business at 44%. Doves however do not capture second place here with Zimnat (21%) and Old Mutual (15%) being the other notable contributors.
Where they invest
An important part of insurance, in general, is where they invest their money and there is some interesting reading in this part of the report too. Equity investments make up the bulk of investments by life assurance companies at 72.52%. There’s nothing wrong with that at all, especially when your stock market continues to outpace inflation by any measure. The stand out feature here is non-compliance with a prescribed asset ratio of 15% for 10 of the 11 life assurers that managed to submit reports. Prescribed assets are government-approved investments that receive special treatment. This is usually done to encourage investment in certain areas but can also be viewed as an attempt to force investment in unfavourable assets. Treasury Bills are a good example of this. Zimbabwean insurers are encouraged to have 15% of their investment portfolio in prescribed assets but only one company met the threshold with the aggregate position being 3.56% investment in prescribed assets.
Another interesting feature of investment by Life assurers is the asset distribution. Old Mutual has almost half of the assets held by life assurers. Nyaradzo is also on the rise with their recent forays into agriculture and other businesses playing a key role in their asset growth.
Finally, 3.79% of business written in the fourth quarter of 2021 was new business representing modest growth. Inflation-adjusted profit for the industry was up 74% in inflation-adjusted terms.
A current ratio below desirable levels
The current ratio is an accounting which you can read a little more about here. What we need to know is that the current ratio compares our current assets (assets we can quickly turn into cash) to our current liabilities (obligations we expect to pay within 12 months). For assurance companies, the current assets are investments which they can liquidate within 12 months versus current liabilities which are policy payouts they expect to make within 12 months. A current ratio of 1 or 100% represents a position where current assets are equal to current liabilities. Less than 1 or 100% represents a situation where there are fewer assets than liabilities while greater than 1 or 100% represents more assets than liabilities. The problem with a ratio below 100% is the risk of liabilities becoming due immediately without enough cover for them. And here Life assurers scored worrisomely with a current ratio of 96% on average.
Complaints also represent important information about the life assurance sector. In the fourth quarter of 2021, IPEC dealt with 26 complaints. 6 of the 26 were related to low-value payouts, a hangover from the switch to dollarisation in 2009. The other 20 complaints were over late or non-payment of benefits.
The life assurance sector can be described as strong and growing stronger. A raft of laws was instituted in 2021 through Statutory instruments and circulars from the RBZ. With both business and profitability growing the industry looks healthy. Moves to allow companies to invest in offshore and foreign currency denominated investments can only improve things as they will also be able to offer customers foreign currency-denominated cover.
All images were obtained from the IPEC 2021 Fourth Quarter Life Assurance Industry Report (1).