Reserve Bank of Malawi (RBM) has defended the proposed increase in minimum capital requirements for all licensed insurance companies, arguing it is “long-overdue” and would help build a robust and more resilient insurance sector.
The proposed requirements, which are set to be effected between December 2015 and December 2016, will see general insurer’s capital requirements rising by 1 400 percent to K750 million ($1,363,636) from K50 million ($90,909), life insurers from K75 million ($136,363) to K1 billion ($1,818,181), representing a 1 233 percent rise and reinsurers will have to part with K1.5 billion from K100 million, which is a 1 400 percent jump.
RBM has since engaged insurance companies most of whom have expressed reservations on the proposal.
But speaking in an interview on Friday, RBM deputy governor for bank supervision Grant Kabango said they are aware that the proposal has irked some insurance operators, but stressed that adequate capital base will help unleash liquidity in the industry which will entail its growth.
“I know that the industry is agitated by the revision in the directives on insurance, especially on capitalisation but the revision is long overdue and we greatly need it if we are to build a more robust and resilient insurance industry in the country,” he said.
Kabango pleaded with insurance companies not to panic with the imminent hike, saying all players will be given adequate time to prepare and comply with the new capital requirements.
He said: “We are living in a dynamic world and the cost of living is always increasing and, therefore, our insurance industry which is supposed to cover an individual in case of an emergency is also supposed to be well buttressed in terms of resource base to cover any claim that will arise from any kind of accident.”
He said if insurance companies are not well capitalised, they fail to cover the claims.
Kabango said RBM has categorised all insurance companies in the recapitalisation programme so that capital requirements should not be standard to all companies, but will be according to the scale that will suggest the kind of risks that insurance companies will take.
“If you are a small player, therefore, your risks are also small and as such, you many not require huge capitalisation,” he said.
In an earlier interview, Smile Life Insurance chief executive officer Stain Singo noted that the reasons for raising the minimum capital and solvency requirements are important to protect consumers and the industry to ensure sanity.
He faulted the proposed raise, saying it is one-size-fits-all and is not ideal, suggesting that consideration should have been risk-based.
But with the response from Kabango, it would seem concerns of insurance players have been answered. n