A NUMBER of local reinsurance players will in future consolidate into strong global groups as Zimbabwe cannot sustain a closed insurance market, an insurance guru has said.
BY FIDELITY MHLANGA IN TROUTBECK NYANGA
Managing director of Pan African Reinsurance Brokers David Chinyemba said in line with current insurance regulations, reinsurance treaties were only placed with locally licensed players, a situation which presented the country as a closed market for reinsurance business.
In 2000, the country had three indigenous reinsurance companies and one foreign branch. Currently, there are seven local players and one regional branch.
Reinsurance gives the direct writer capacity to underwrite risks which are too large, too complex or too risky for the direct writer to entirely retain to its own account.
It offers the direct writer protection on risks, which it will have retained to its own account from the possibility of single “large” losses and an accumulation of losses on a number of risks, resulting from the same loss event. Though localised, competition has become more intense and price-driven.
There are cases of lack of depth and compromises, in the absence of active international players, he said.
Chinyemba said there were cases of company shareholders and directors, being non-insurance people, may not be aware of the nature and cycles of reinsurance business.
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He said in Zimbabwe there has been considerable risk transfer, for capital substitution for reinsurance players. He added that skewed and favourable reinsurance commissions have persuaded direct writers to maintain proportional programmes on portfolios, which could be retained.
Reinsurance has been used as a tool to accommodate and enable sub-standard pricing adding reinsurance costs have become thinner and thinner.
In the outlook, Chinyemba said regulation of underwriters would move towards a stricter “Solvency II” type model. “Regulation will be stricter on both asset quality and solvency margins. This means shareholders will be dealing with true return on equity figures and will require better performance,” said Chinyemba.
