MINIMUM capital requirements in the reinsurance sector are set to increase following a mutual agreement in the industry which seeks to strengthen underwriting capacity, a report by the Insurance and Pension Commission (Ipec) has shown.
Report by Acting Business Editor.
According to the Ipec first quarter report on short-term insurance, main players motivated the insurance regulator to increase their threshold capital to $2 million from $1,5 million.
Ipec last year reviewed the minimum capital requirements for the entire sector through a staggered capitalisation exercise set to be concluded in June 2014.
Reinsurance is the practice of insurers transferring portions of risk portfolios to other parties by some form of agreement in order to reduce the likelihood of having to pay a large obligation resulting from an insurance claim.
The intent of reinsurance is for an insurance company to reduce the risks associated with underwritten policies by spreading risks across alternative institutions.
“The Zimbabwe Association of Reinsurance Offices (Zaro) has resolved that its members should have a minimum capital requirement of $2 million,” the report read.
The proposals have since been lodged with the commission, which has considered them and is agreeable to the same. Going forward, the commission will be considering coming up with a statutory instrument in respect of the proposed minimum capital requirements to enable enforceability of the same.”
The short-term reinsurance sector, according to Ipec, was generally considered safe in terms of capitalisation as at March 31 2013. All the operational reinsurers, except New Reinsurance Company (Pvt) Limited, reported capital levels which were compliant with the minimum capital requirement of $750 000 effective June 30 2013.
“All the reinsurers who reported capital levels which were above $750 000, only Colonnade Reinsurance Company reported a capital position which was below $1,5 million effective 30 June 2014. During the quarter under review, Colonnade Reinsurance Company, ZB Reinsurance Company and PTA Reinsurance Company’s country office received capital injections from their respective shareholders, hence the significant increases in capital positions from those reported as at 31 December 2012 . . .” the report further reads.