Insurance sector faces solvency, liquidity risks
The insurance sector performance was burdened over the six-month period to June 2021 as players faced solvency and liquidity vulnerabilities due to inadequate capital and high insurance receivables, a Reserve Bank of Malawi (RBM) report shows.
In its June 2021 Financial Stability Report, the central bank said though the sector was adequately capitalised, three of the eight general insurers, contributing 29.4 percent to the sector’s gross premium written, reported solvency ratio below the minimum regulatory requirement.
The RBM report said that core capital of the sector declined by 3.2 percent to K15.3 billion due to operating losses incurred by two insurers.
The figures which are based on January to June data as part of the bank’s biannual stress test, indicate insurance receivables on the other hand also remained a concern as they constituted 73.5 percent of the sector’s total capital and thus continued to expose the sector to significant credit risk.
Reads the report in part: “Liquidity of the sector on the other hand as measured by the liquidity ratio also remained weak and further weakened in the period under review as revealed by a 0.9 percentage points drop in the liquidity ratio to 79.9 percent as at June 2021 against the recommended minimum of 100.0 percent.
“High insurance receivables mainly contributed to the sector’s continued weak liquidity as only one general insurer reported liquidity ratio above the recommended minimum benchmark.”
Reacting to the report, chartered insurer Duncan Bvomerani observed earlier that the economic challenges that the country is undergoing rendered most clients cashless, ultimately making it hard for them to pay their premiums on time.
He said that a comparative analysis shows that general insurers have underperformed in the last three years.
Said Bvomerani: “General insurers are currently required to hold K750 million as paid up capital and K600 million as core capital and to raise such substantial sums of money remains a huge challenge for some insurers.
“This coupled with the business environment, insurers have failed to generate adequate premium income which forms part of working capital in the insurance sector.”
In view of the subdued performance, RBM Governor Wilson Banda, who is the registrar of financial institutions, said he will continue to closely monitor risks inherent and emerging in the system and where necessary institute appropriate supervisory interventions.
