Nico Holdings Limited subsidiary, Zimbabwe-based SFG Insurance Company, has been asked to come up with a â€˜viable recapitalisation planâ€™ to address its undercapitalisation after recording a huge negativeÂ solvency ratio, Business News has learnt.
The Malawi Stock Exchange (MSE)â€”listed financial services group has 49 percent stake in SFG bought in January 2010 at $1.3 million (K410 million, at the current exchange rate) with the remaining shareholding, 51 percent, owned by Baobab Re.
Nico Holdings bought the stake through internally-generated cash flow and other means, according to the companyâ€™s managing director Felix Mlusu who spoke to Business News in January 2010.
A recent Insurance and Pension Commission (Ipec) report from Zimbabwe shows that SFGâ€™s capital base which stood at a negative $1.3 million (K410 million) at the end of June 30 2012, while shareholderâ€™s equity was $1.12 million (K353 million), fell far short of minimum thresholds required for sound operations.
In September, Ipec pegged new minimum capital requirements for non-life insurance companies at $2 million (K630 million).
â€œIpec has since engaged SFG with a view to having the institution come up with a viable recapitalisation plan to address its undercapitalisation and the engagements are still ongoing,â€ reads part of the report quoted by Business Digest, a supplement of Zimbabwe Independent newspaper.
There are fears that the insurance firm, ZimRe Holdings Limitedâ€™s (ZHL) short-term insurance subsidiary, may face closure.
SFGâ€™s solvency ratio stood at a negative -97.96 percent compared to the sector average of 83.57 percent for short-term insurers as at June 30 2012. The regulatory minimum solvency requirement is 25 percent, according to Ipec.
Ipec says the total capital base for direct short-term insurers was skewed towards revaluation and other reserves which accounted for 28.3 percent of the same, followed by share premium which constituted 28.03 percent.
In contrast, SFGâ€™s parent company â€” Baobab-Re â€” has a huge solvency ratio of 296 percent despite reporting a loss of $3.1 million (K977 million) as at end of June 2012.
Mlusu was out of reach on Wednesday to comment on the implications the undercapitalisation of SFG would have on the Nico Group.
Nico Holdings was the first company to list on MSE in 1996 and apart from Malawi; it operates in five other countries in Africa namely; Zambia, Zimbabwe, Tanzania, Uganda and Mozambique.