Non-Life insurers report 31% growth in H1 profit due to lower expenses, reduced uptake of reinsurance



The short term insurance sector reported a 4.97% decrease in total gross premium written to $114.33 million driven by a shrinkage in business generated from fire and motor insurance. Of that amount $50.13 million was generated through insurance brokers.

According to the Insurance and Pensions Commission report for the six months to June, prevailing economic challenges continue to affect the volume of business generated. Apart from aviation and farming insurance all the business classes recorded shrinkages in total GPW. However, farming and aviation insurance account for a negligible portion of total GPW.

Motor and fire insurance remained the main sources of business for non-life insurance companies accounting for a total of 61.53% of total GPW but recorded declines of 4.6% and 9% respectively.  The bonds/guarantees class was down 11.12% while health posted the largest class loss of 82.53%

There was however an increase in profit of 31.53% to $6.88 million from $5.23 last year driven by reduction in operating expenses coupled with reduced uptake of reinsurance. The increase in profit after tax translated into improved industry average return on assets (ROA) and return on equity of (ROE) to 3.68% and 8.24% from 3.01% and 6.86% for the half year ended June 30 2015.

According to the report, all non-life insurance companies reported solvency margins which were above the regulatory minimum of 25% with an industry average solvency margin of 74.74%.

The asset base for the sector was down to $191.06 million from $196.13 after a decline in premium debtors to $42.73 million.  “This is a normal trend given that when policies move towards their anniversaries more premiums are received while some are written off but some of the premium received is used to meet expenses thereby reducing premiums receivable and total assets in general,” said IPEC.

Total technical liabilities for the non-life insurance sector amounted to $54.90 million, reflecting a 5.05% decrease from $57.82 million which was reported as at March 31, 2016. “The decrease was mainly attributable to a decrease in Unearned Premium Reserves (UPR) which trend is normal as we move towards the end of an insurance policy term.”

The industry average liquid assets to total technical reserves improved to 125.36% from 117.63% as at the March quarter.  “The Commission noted with concern that some insurers may not have adequate liquid assets to liquidate their insurance contract obligations timely should the need arise. This is shown by their liquid assets to technical reserve ratios which were significantly below 100%.

Total cash and near cash assets amounted to $68.82 million as at 30 June 2016, reflecting no significant change from $68.01 million reported as at 31 March 2016. The overall liquidity position of the insurance sector improved during the quarter under review as reflected by an increase in the acid test ratio from 69.80% as at 31 March 2016 to 76.68% as at 30 June 2016.

The asset base for non-life insurers remained skewed towards cash and cash equivalents as well as premium debtors with the two asset classes accounting for 48.76% of total assets.  The proportion of total assets attributable to cash and cash equivalents, prescribed assets, technical assets and equities which can easily match non-life insurance liabilities was considered acceptable at a total of 51.48%.

“However, the Commission urges non-life insurance companies to devise strategies to reduce the proportion of assets tied up in premium debtors as well as fixed assets. This will help to unlock value in terms of investment income as well as liquidity to enable timely settlement of obligations”

The average prescribed assets ratio of the industry was a 10.80% reflecting no significant change from 10.96% reported in the March quarter. Although the industry average prescribed assets ratio was compliant with the minimum requirement of 5%, there were 10 out of 20 operating insurers, who were not compliant with the minimum requirement.  Four of these insurers did not have any investments in prescribed assets.

Non-life insurers reported an industry average retention ratio of 57.31%  reflecting a marginal increase from 55.19% reported for the comparative period in 2015. “The marginal increase in the retention ratio indicates that the risk appetite as well as capacity of insurers remained largely unchanged.”

The retention ratio for individual insurers for the period under review ranged from 11.69% to 100%.

The industry average reinsurance creditors to reinsurance premium ratio decreased to 40.78% from 43.90%. This indicates a marginal improvement in reinsurance premium remittance by insurers.

Notwithstanding the industry average ratio of 40.78% some insurers exhibited high levels of  outstanding reinsurance premiums, some dating back to before  December 2015, with the reinsurance creditors to reinsurance premium ratios ranging from nil to 8,497.57% for the half  year period under review.

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