The insurance sector has over the past six months reported a 5.7 percent increase in capital base from K10.3 billion to K10.9 billion owing to profit retention by general insurers, the Reserve Bank of Malawi (RBM) has said.
RBM said in its December 2015 Financial Stability Report that the general insurance sector, however, recorded a slight drop in capital adequacy levels as indicated by a decrease in solvency ratio from 34.9 percent in March 2015 to 32.2 percent in September 2015.
The capital adequacy level, a standard that measures risk of insolvency – remained above the minimum regulatory solvency ratio of 20.0 percent.
According to the central bank, the drop was largely attributed to growth in uncollected premiums, which are inadmissible for solvency purposes beyond a certain limit.
“The insurance and pension sectors remained strong with the majority of insurers meeting the minimum regulatory capital requirements. However, liquidity for the general insurance sector slightly weakened, as liquid assets to current liabilities ratio dropped,” said RBM governor Charles Chuka.
The report indicates that the sector’s asset composition remained fairly satisfactory over the period under review with total assets increasing by 7.0 percent from K28.7 billion in March 2015 to K30.7 billion in September 2015 largely due to growth in premium receivables.
Money market investments and insurance premium dues constituted the largest asset classes making up 36.8 percent and 27.2 percent of total assets respectively as at September 2015.
It further states that liquidity for the general insurance sector, however, slightly weakened over the period under review.
“The sector continued to be exposed to rising levels of uncollected premiums. The situation was attributed to wider economic problems including unsatisfactory premium payment on public accounts,” the statement says.