Short term insurers fall marginally - IPEC report

Gross premium written for short term insurers in the first quarter was recorded a marginal decrease of 0.3% to $66.68 million attributed largely to the decline in hail insurance to $370 000 from $4.19 million following the closure of SFG insurance.

According to the IPEC report for the first quarter short term insurers recorded their first dip since the inception of the multi-currency regime. In the period, Motor and fire insurance continued to be the dominant classes of business for the short term insurance industry. There was also significant business from bonds/guarantees.

Gross premium generated from these business classes increasing by $2.4 million for motor and $1.81 million for bonds/guarantees. However the commission urged the prudent underwriting in the bonds/guarantees businesss especially with regards to registering of security.

"This is in light of the fact that poor underwriting practices in this class of business were one of the major reasons which led to the suspension of three of the five institutions currently not operating."

There were 28 registered short term direct insurers as at March 31, the same number reported as at 31 December 2012. Of these registered non-life insurers, 23 were operational. SFG Insurance Company has since been directed to stop writing business and the commission is in the procce of de-registering them.

 The Commission has also started deregistration of Jupiter Insurance Company (Private) Limited, Agricultural Insurance Company (AICO), and Suremed Health Insurance Company (Private) Limited following the running off of insurance policies in their books.

"Engagements with Export Credit Guarantee Corporation (ECGC) (Private) Limited are still ongoing and a decision will be made upon finalization of these engagements. Meanwhile ECGC remains suspended from writing new business."

In terms of capital levels, the report notes that amongst the operational underwriters, only two (an insurer and one reinsurer) reported capital levels which were below the regulatory minimum of $750,000. Only three brokers reported capital levels which were below $100,000.

Gross premium written by reinsurers increased to $29.74 million from $27.59 million last year. Of the business generated by the insurers and reinsurers, $31.7 million was obtained through local insurance and reinsurance brokers.

The profitability of both non-life insurers and reinsurers improved to $3.31 million and $3.03 million respectively. Insurance brokers reported profits amounting to $0.62 million. The increase in profit after tax was mainly attributable to an increase in unrealized gains emanating from the marking to market of the investment portfolios as well as reduction in commission incurred which amounted to $1.36 million and $0.85 million respectively.  

Although the direct short term insurers' sector reported a positive overall profit position, five insurers namely Tristar Insurance Company, Regal Insurance Company, Altfin Insurance Company, Sanctuary Insurance Company and Eagle Insurance Company recorded losses during
the quarter under review.  
Underwriting profits increased to $2.89 million from $1.82 million last year.  Notwithstanding the increase in underwriting profits, the average combined ratio for the non-life insurers increased to 88.20% from 82.63% reflecting deterioration in the profitability of the insurers' core business of underwriting.  
The deterioration in underwriting profitability is further indicated by the decline in underwriting margin to 11.80% from 17.37% in the comparable year ago period.  
Further, there was a marked increase in claims which resulted in the deterioration of the loss ratio to 42.04% from 34.51% to 42.04%. Investment income accounted for only 3.73% of net premium written (NPW) indicating that the short term insurers are generating the bulk of their income from their core business of underwriting.  

Cell Insurance Company, Nicoz Diamond Insurance Company and RM Insurance Company were the top three insurers in terms of both gross premium written and net premium written with a combined market share of 46.42% and 45.99% respectively.

In terms of assets, Cell Insurance Company Nicoz Diamond Insurance Company and Alliance Insurance Company were the market leaders with market shares of 13.75%, 11.93% and 11.50% respectively as at  March 31.

Total assets for non-life insurers, reinsurers and insurance brokers increased to $326.27 million from $293.54 million. However, the commission said it was concerned with high ratios of non-profitable assets to total assets which were 64.09% and 39.61% for insurers and reinsurers respectively as at 31 March 2013.

Short term insurers and reinsurers reported average net retention ratios of 49.99% and 77.13% for the quarter. Premium remittances by brokers, insurers and reinsurers to insurers, reinsurers and retrocessionaires respectively, were not up to date as at March 31.

"In the case of brokers the ratio of premiums not remitted to insurers to premium written was 61.33%, while in the case of insurers the average ratio of reinsurance creditors to reinsurance premium was 106.10%."

The average of retrocession creditors to retrocession premiums ratio for reinsurers was 198.64%.

The report notes that the liquidity position of the non-life insurers as well as that of reinsurers was seriously compromised by high levels of premium debtors.