Half of funeral assurance companies face collapse

BY FIDELITY MHLANGA

MORE than 50% of funeral assurance companies are on the brink of collapse amid revelations by the industry regulator that they are under capitalised.

According to the first quarter report from the Insurance and Pensions Commission (Ipec), five out nine funeral assurance companies face an uncertain future as they are battling to meet the minimum capital requirement for funeral assurance entities pegged at $2,5 million.

The five companies are capitalised as follows: Foundation ($1,3 million) Orchid ($712 000), Passion ($557 000), Ruvimbo ($2,4 million) and Sunset ($1,5
million).

“Five out of nine funeral assurance players reported capital positions below the regulatory minimum capital requirement of $2,50 million, based on their
unaudited financials as at March 31, 2019. The commission has engaged all players to submit capital positions with regards to Statutory Instrument (SI) 95 of
2017,” Ipec said.

Furthermore, all funeral assurers were non-compliant with the minimum prescribed asset (PA) ratio of 10% as announced in the 2019 National Budget Statement, as
only 1,62 % of total adjusted assets were invested in PA. Industry investments in PA status decreased by 9,8% from $1,39 million as at December 31, 2018 to
$1,25 million as at March 31, 2019.

“It has been observed that industry players continue to report capital levels that include assets, which may not be available to meet liabilities should they
be faced with an adverse claims experience,” Ipec said.

The industry had a negative working capital position of $13,27 million as at March 31, 2019, as $17,04 million worth of current liabilities are being supported
by $3,77 million in current assets.

Profit before tax for the funeral assurance industry decreased by 70,63% from $1,97 million reported for the quarter ended March 31, 2018 to $0,58 million for the quarter-ended March 31, 2019.

The funeral assurance industry’s total gross premium written (GPW) increased marginally by 6,87% from $10,39 million for the period ended March 31, 2018 to
$11,11 million for the three months ended March 31, 2019.

The decrease in profit before tax was partly attributed to increase in claims, operating and administration expenses, which increased exponentially to levels
above 30% as compared to the GPW for the quarter-ended March 31, 2019.

Ipec warned players against increasing operating costs and commissions that remain relatively high compared to claims as they accounted for 62,49% of total
costs.

“The high costs will not be sustainable in the long run, given that the nature of the business is more long-term and additional pressure from cash-back
policies being underwritten. Accordingly, the industry will not be able to sustain such high cost-structures should they be faced with a change in claims
experience. As highlighted in the last quarterly report, the commission is concerned with high commissions, management, operating and administration costs that
are being incurred by industry players at the expense of policyholder protection,” Ipec said.

Claims ratio (net claims; net earned premiums) for the industry was 36,92% for the three months ended March 31, 2019.

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