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Insurance sector poised for growth



AFRICA’S largest rating agency, GCR Ratings, predicts that Zimbabwe’s insurance industry gross premiums will grow steadily this year, supported by the pricing stability introduced by the auction system for foreign currency which is sustaining the disinflation trend.


Protracted economic challenges which culminated in the change of Zimbabwe’s functional currency from the US dollar to the Zimbabwean  dollar and the subsequent onset of hyperinflation resulted in significantly lower insurance sector gross premiums of US$156 million in 2020, says GCR in its latest research report focusing on Zimbabwe.

In 2019, the figure stood at US$138 million, against the 2018 figure of US$703m. Resultantly, insurance penetration decreased to 0.6% in 2020.

GCR said new business uptake was restrained by low confidence in life assurance by policyholders due to currency changes and high inflation experienced in 2020.

These factors increased fears of the recurrence of a episode of loss of value, similar to that experienced during the 2008/9 hyperinflation and currency transition period.

“Overall, GCR expects industry gross premiums to grow steadily in 2021, supported by the pricing stability introduced by the auction system for foreign currency which is sustaining the disinflation trend,” the report reads in part.

“However, there is implied future volatility if there are changes to the policy environment. To the credit of the industry, price-based competition has remained restrained with players pinning competitive edge on superior service and products, thus avoiding rates compression,” it said.

GCR said the long-term industry is dominated by funeral and group life businesses. In 2020, the two products accounted for 66% and 29% of the long-term sector’s gross premiums, respectively.

In 2019, both business lines registered significant declines of 83% and 88% of total premiums respectively due to the change in functional currency, before rebounding by 43% and 161% respectively in 2020, that is US$30m and US$13m.

“In 2020, we saw a growth in the local currency book due to the increase of premiums for funeral assurance and group life assurance in order for the sector to recoup costs associated with increased mortality rates due to the Covid-19 pandemic,” it said.

“However, the life segment struggled to recover premiums to historical levels given a high proportion of confidence-sensitive liabilities, eroded disposable incomes (impacting more defensive products like funeral policies), limited repricing ability, and poor new business uptake.”

GCR said the long-term industry relies heavily on recurring business which accounts for 95% of total premiums.
Positively, lapse rates were lower than expected at 8.5 last year, thus displaying some resilience to the impact of Covid-19 despite already suppressed disposable incomes.

GCR is Africa’s leading rating agency, with coverage in excess of 500 ratings in over 20 African countries. Through its network of local offices in South Africa, Nigeria, Kenya and Mauritius, GCR has the largest rating team in Africa, giving it unmatched on-the-ground presence, as well as easy access to market participants. GCR traces its origins back to 1996 and has since established itself as the leading rating agency in Africa, accounting for the majority of all ratings accorded on the African continent.

The company is licensed as a rating agency in a number of markets, including Kenya with the Capital Markets Authority, Nigeria with the Securities and Exchange Commission, Zimbabwe with the Reserve Bank of Zimbabwe and Mauritius with the Financial Services Commission.

In South Africa, it is registered as a credit rating services provider by the Financial Services Conduct Authority and is recognised as an eligible external credit assessment institution by the South African Reserve Bank.

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