FUTURE CHALLENGES, OPPORTUNITIES AND IMPERATIVES IN INSURANCE IN THE REINSURANCE SPACE
Delve into the presentation at the IIZ Winter School discussing the prevailing performance, role of reinsurance, and financial outlook of the Zimbabwe insurance industry. Explore market figures, trends, and factors impacting after-tax profits over the past five years.
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FUTURE CHALLENGES, OPPORTUNITIES AND IMPERATIVES IN INSURANCE IN THE REINSURANCE SPACE PRESENTATION AT THE IIZ WINTER SCHOOL BY:-
PRESENTATION OUTLINE Prevailing Insurance Industry Performance An Overview 1 Zimbabwe s Place On The Global Insurance Map 2 Informational Slide The Place Of Reinsurance 3 What Role Has Reinsurance Played In Current Zimbabwe? 4 Zimbabwe Insurance & Reinsurance Outlook 5
PART I PREVAILING ZIMBABWE INSURANCE INDUSTRY PERFORMANCE - AN OVERVIEW
ZIMBABWE INSURANCE INDUSTRY - MARKET FIGURES STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS 2011, 2012, 2013, 2014 & 2015 2011 2012 2013 2014 2015 Gross Premium Transacted 158,968,000 193,997,000 209,837,255 214,914,868 214,706,164 Reinsurance Cessions & Costs 76,539,055 94,086,000 99,554,000 95,402,095 95,236,887 Net Premium Written 82,428,945 99,911,000 110,283,255 119,512,773 119,469,277 Retention Ratio 51.85% 51.50% 52.56% 55.61% 55.64% 1,680,000 5,713,000 4,764,000 2,239,000 (388,000) Increase / (Decrease) Of UPR On Net Premiums Net Premiums Earned 80,748,945 94,198,000 105,519,255 117,273,773 119,857,277 Net Commissions Paid 3,467,945 4,274,000 4,843,000 8,123,008 9,158,343 Net Commssions Paid To GPI 2.18% 2.20% 2.31% 3.78% 4.27% Total Net Claims Incurred 37,389,000 43,955,000 45,633,000 47,778,003 53,381,368 Net Claims Incurred To Earned Premium Ratio 46.3028% 46.6623% 43.2461% 40.7406% 44.5374% Technical Result 39,892,000 45,969,000 55,043,255 61,372,762 57,317,566 Management Expenses 36,347,000 40,848,000 47,994,000 52,986,000 54,133,000 Underwriting Result 3,545,000 5,121,000 7,049,255 8,386,762 3,184,566 Investment Income 2,487,000 2,810,000 4,413,000 4,512,000 4,201,400 Unrealised Gains / (Losses) 584,000 442,000 (510,000) (331,000) (2,170,400) Other Comprehensive Income / (Losses) 1,246,000 1,757,000 4,090,000 2,185,000 2,457,400 Profit / (Loss) Before Taxation 7,862,000 10,130,000 15,042,255 14,752,762 7,672,966 Taxation 643,000 2,874,000 3,020,000 4,502,000 3,054,500 Profit / (Loss) After Taxation 7,219,000 7,256,000 12,022,255 10,250,762 4,618,466 After Tax Profit To Gross Premium Ratio 4.54% 3.74% 5.73% 4.77% 2.15% After Tax Profit To Earned Premium Ratio 8.94% 7.70% 11.39% 8.74% 3.85% Ratio x Net Claims To Net Prem. Earned 46.30% 46.66% 43.25% 40.74% 44.54% Source - IPEC Reports From Market Returns
ZIMBABWES PAST 5 YEARS FINANCIAL PERFORMANCE Progressive Growth In GPW, post Dollarisation Progressive, yet marginal increase in Retention Ratios Net Commissions Payable moved up in tandem with Risk Retention trends Claims to Premium ratios have remained constant, at around 45% Continually increasing Management Expenses putting pressure on performance After Tax Profits not getting help from Investment Income. A reflection of liquidity constraints and limited high yielding investment vehicles.
ZIMBABWE INSURANCE INDUSTRY - MARKET FIGURES COMBINED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEARS 2014 & 2015 Fire 92,020,294 Engineering 20,992,654 Motor 175,757,044 Agriculture Misc. Acc & Other 14,806,600 Total 429,621,032 Gross Premium Transacted 126,044,440 Reinsurance Cessions & Costs Net Premium Written Retention Ratio 64,649,465 27,370,829 14,515,315 6,477,339 36,974,995 138,782,049 6,853,855 7,952,745 53.71% 67,645,352 58,399,088 190,638,982 238,982,050 29.74% 30.86% 78.96% 46.33% 55.63% 389,705 26,981,124 91,294 6,386,044 137,999,131 782,918 73,627 7,879,118 513,455 57,885,633 1,851,000 237,131,050 Increase / (Decrease) Of UPR On Net Premiums Net Premiums Earned Net Commissions Paid Net Commssions Paid To GPI 170,525 0.19% (672,730) -3.20% 9,268,511 5.27% (1,403,118) 9,918,163 7.87% 17,281,351 -9.48% 4.02% Total Net Claims Incurred 8,658,203 32.09% 2,449,105 38.35% 69,439,379 4,353,724 55.26% 16,409,354 101,309,764 50.32% 28.35% 42.72% Net Claims Incurred To Earned Premium Ratio Technical Result 18,152,396 4,609,670 59,291,241 4,928,512 31,558,116 118,539,934 Technical Results To Gross Premium Ratio 19.73% 21.96% 33.73% 33.29% 25.04% 27.59% Technical Results To Earned Premium Ratio 67.28% 72.18% 42.96% 0.00% 0.00% 49.99% Ratio x Net Claims To Net Prem. Earned 32.09% 38.35% 50.32% 55.26% 28.35% 42.72% Source - IPEC Reports From Market Returns
ANALYSIS OF PER CLASS FINANCIAL PERFORMANCE FOR 2014/5 Fire & Motor remain the market s major sources of GPW Retention Ratios are following the class risk spreads and the propensity to front risk in classes of high claims variance (Accident & Agriculture) Favourable reinsurance commissions in a market where reinsurers are under pressure for GPW also encouraging risk transfer. Technical Results seemingly favourably, until one factors the Management Expenses associated with transacting that business
PART II LOCATING ZIMBABWE ON THE GLOBAL INSURANCE MAP
SWISS RES SIGMA REPORT ON GLOBAL INSURANCE Looks at the movements in the performance indicators for the Insurance Industry in the context of Global economic performance and the performance of the Global financial markets Looks at the movements in Life & Non-Life premiums Looks at the movements in the Per Capita spending on insurance and Insurance penetration levels Gives a prediction of the direction which the industry is taking in a given outlook period.
GLOBAL VS ZIM INSURANCE FIGURES & PERFORMANCE INDICATORS 2014 GLOBAL FIGURE ZIM'S FIGURE / SHARE OF AFRICA Gross Premium Transacted - Life. Gross Premium Transacted - Non Life Gross Premium Transacted - Total $2,655 Billion $2,124 Billion $4,779 Billion $313 Million $208 Million $522 Million Africa's Share Of Global Market Premiums SA's Share Of Africa's Premiums 1.7% Life 88.5% Life 1.1% Non Life 59.5% Non Life Insurance Penetrantion Ratio - Life Ins Insurance Penetrantion Ratio - Non-Life Ins Insurance Penetrantion Ratio - Combined 3.8% 2.2% 3.0% 1.4% 6.8% 3.6% Combined Ratio - Non Life 98.1% 92.84% Investment Income / Net Earned Prem - Non Life 11.8% 3.57% Return On Equity - Life Return On Equity - Non Life 13% 7.6% 5.73% Solvency Margins - Non Life 123% 66.81% Sources - Swiss Re SIMGA 4/2015 & IPEC Annual Report
PART III THE PLACE OF REINSURANCE
WHY A DIRECT WRITER NEEDS REINSURANCE Reinsurance gives the Direct Writer capacity to underwrite risks which are too large, too complex or too risky for the Direct Writer to entirely retain to its own account Reinsurance offers the Direct Writer protection on risks which it will have retained to its own account from the possibility of single large losses and an accumulation of losses on a number of risks, resulting from the same loss event
PROPORTIONAL REINSURANCE THE CAPACITY GIVERS QUOTA SHARE TREATY SURPLUS TREATY PROPORTIONAL FACULTATIVE
PICTORIAL PRESENTATION PROPORTIONAL REINSURANCE 6M Facultative (Above 4.2 Million) 30% 24%18% VALUE OF RISK 10% 4.2M Treaty Capacity 6 Line Surplus 60% 65% 70% 77% 86% 80%75%67% 50% 600K Your Retention (600,000) 10% 11% 12% 13% 14% 20% 25% 33% 50% 100% 100% RISKS
TYPICAL PROPORTIONAL TREATY SUMMARY Treaty Capacity Class Retention Treaty Fire & 600,000 3,000,000 Engineering Fire & Engineering Fire 600,000 3,000,000 Engineering Quota Share 15,000 Motor 45,000 Miscellaneous Accident Surplus 50,000 250,000 Accident
NON-PROPORTIONAL REINSURANCE PROTECTING THE RETAINED RISKS EXCESS OF LOSS TREATY EXCESS OF LOSS FACULTATIVE STOP LOSS / AGGREGATE XL
PICTORIAL PRESENTATION - XL TREATY Amount of loss Upper limit of cover Per Risk US$30,000 US$30,000 US$25,000 Not covered By XL US$20,00 0 US$15,000 Reinsurance cover US$10,000 Deductible US$5,000 US$5,000 1 2 3 4 5 6 losses
TYPICAL PROP & XL TREATY SUMMARY 2016 Accident Treaties Misc. Accident Treaties 2016 Motor Treaties Fire & Eng. Treaties Motor Treaties FAC BEYOND $300,000 FAC OBLIG - UP TO $5,000,000 FIRE/ENG.SURPLUS - $600,000 X 5 LINES = $3,000,000 MISC ACC SURPLUS - $50,000 X 5 LINES = $250,000 MOTOR FAC BEYOND $60,000 MOTOR QUOTA SHARE - $15,000 XL COVER - $35,000 XL COVER - $580,000 XL COVER - $42,500 RETENTION $45,000 RETENTION $600,000 RETENTION $50,000 XL DEDUCTIBLE - $10,000 DEDUCTIBLE $20,000 DEDUCTIBLE $7,500
PART IV WHAT ROLE HAS REINSURANCE PLAYED IN CURRENT ZIMBABWE?
WHY A DIRECT WRITER NEEDS REINSURANCE Reinsurance gives the Direct Writer capacity to underwrite risks which are too large, too complex or too risky for the Direct Writer to entirely retain to its own account Reinsurance offers the Direct Writer protection on risks which it will have retained to its own account from the possibility of single large losses and an accumulation of losses on a number of risks, resulting from the same loss event
ZIMBABWE, A PROTECTED INSURANCE MARKET Reinsurance treaties are only placed with locally licenced players In 2000, the country had 3 indigenous companies & 1 foreign branch. Currently, there are 7 local players & 1 Regional branch. Though localised, competition has become more intense and price driven. There are cases of lack of depth & compromises, in the absence of active international players There are cases of company shareholders and directors, being non-insurance people, may not be aware of the nature and cycles of reinsurance business.
WHAT ROLE HAS REINSURANCE BEEN ASSIGNED? There has been considerable risk transfer, for capital substitution Skewed & Favourable Reinsurance commissions have persuaded Direct Writers to maintain proportional programmes on portfolios which could be retained. Reinsurance accommodate / enable sub-standard pricing has been used a tool to XL programmes have operated on considerably low deductibles Reinsurance costs have become thinner & thinner
THE ROLE OF REINSURANCE ZIM VS GLOBAL TRENDS REINSURANCE GLOBAL TRENDS REINSURANCE - ZIMBABWE - Capacity Plays A Major Role In Capital Substitution - Risk Is Largely Retained Backed By Sound Capitalisation - Capacity Used To Accept Sub- standard & Unfamiliar Risks - Underwriting Is Only Done In Areas Of Expertise - Direct Writers Not Too Wary Of Counter-Party Risk - Direct Writers Thoroughly Vet Counter-Parties - Most XL Treaty Is On Exposure Rating - Exposure Rating Is On Prop; Motor/Acc Is On Burning Cost - Most Fac Reinsurance Is Proportional - Most Fac Reinsurance Is Proportional
PART V ZIMBABWE INSURANCE & REINSURANCE OUTLOOK
THE FUTURE OF INSURANCE & REINSURANCE . . . Regulation of Underwriters will move towards a stricter SolvencyII type model. Regulation will be stricter on both asset quality & solvency margins This means shareholders will be dealing with true ROE figures & will require better performance As the country opens up to (more) international investments, Zimbabwe can not sustain a closed insurance market A number of local players will consolidate into strong Global groups to operate in accordance with international standards For Insurance, it is back to the Future and for Reinsurance, the future is XL
