Insurance sector falls on hard times
Mbongeni Mguni | Friday January 19, 2018 15:22
The dismal performance is part of research contained in the Non-Bank Financial Institutions Regulatory Authority’s (NBFIRA) 2017 annual report released recently. The watchdog, which also covers capital markets, asset managers and pension funds, equally recorded 54 cases of non-compliance in the insurance industry for the year up to March 2017, cancelling 29 licences as a result.
According to the report, the number of licensed operators in the insurance sector dropped from 274 in 2016 to 246 in 2017, due largely to licence withdrawals as well as voluntary and involuntary licence cancellations. Licensed insurance operators include insurers and reinsurers, medical aids, brokers and corporate agents.
Of the licensed operators, corporate agents were the hardest hit, with 52 withdrawals owing to non-renewal as well as voluntary and involuntary licence cancellation. NBFIRA also cancelled three brokers’ licences in 2017.
Mergers during the year also drove the number of licensed operators down, as players in the industry consolidated to better leverage their positions in the market. For several years, the global insurance industry has been amongst the leading mergers and acquisitions sectors due to the heightening of competition for lower available business. NBFIRA’s market intelligence researchers noted that while the local sector remained stable, it was suffering the effects of the distress in the mining industry dating back to the collapse of BCL and Tati Nickel mines.
Profits in the sector for the year ended December 2016 dropped 23% to P861 million, while gross written premiums declined two percent to P4.5 billion over the same period.
Assets in the sector were unchanged at P2.5 billion. “The major contributing factor of the stagnation is attributable to the slowdown in the mining sector, especially the closure of some mining activities,” the researchers noted.
Gross premiums underwritten in the life insurance sector dropped to P3.2 billion in 2016 from P3.3 billion in 2015, while after-tax income dropped 22% to P574 million, which NBFIRA’s researchers also attributed to sluggish mining activities.
Net claims for the period however rose 18% to P1.9 billion, while costs associated with acquisitions jumped to P581 million from P93 million, adding pressure on the sector’s bottom line.
The non-life insurance sector fared even worse as after-tax net income fell to P61 million in 2016 from P146 million in 2015, with net claims up 17% to P457 million.
Despite the troubles in the sector, NBFIRA researchers noted that the industry maintained good levels of capital adequacy and solvency during 2016, except for a handful.
“All those that were below the required levels corrected their situation except for one, which had to be closed,” the report notes.