Struggling insurance sector forced to pay in instalments

A wave of company closures hammering Zimbabwe’s fragile economy pushed the insurance sector to the brink in 2024, culminating in a brutal liquidity squeeze that forced several players to pay claims in instalments, according to a joint assessment released this week by four financial regulators and the Ministry of Finance. Zimababwe Independent reports that the Reserve Bank of Zimbabwe, the Deposit Protection Corporation, the Insurance and Pensions Commission and the Securities and Exchange Commission of Zimbabwe warned in the 2024 Annual Financial Stability Report that the cascading collapse of corporate clients, previously the backbone of premium inflows, inflicted severe revenue shocks on insurers and pension funds. ‘Several direct short-term insurers were struggling to maintain liquidity, resulting in some settling claims in instalments,’ the regulators said. ‘A total of 10 out of the 19 short-term insurers and two out of 10 reinsurers had negative working capital and current ratios below 100%, indicating potential difficulties in meeting their immediate financial obligations,’ the regulators said. ‘In the outlook, the risk is expected to remain high in view of continuing company closures and downsizing instances, particularly in the retail sector,’ the regulators warned.

By year-end, two reinsurers, three direct insurers, a life assurer, 10 insurance brokers and a micro-insurer had failed to meet minimum capital requirements, while 21 of 38 defined benefit pension funds were underfunded. A properly functioning insurance sector pays verified claims promptly and in full, using the capital and liquidity buffers prescribed by regulators. Zimbabwe Independent notes that instalment payments are therefore viewed globally as a sign of distress, usually emerging only after catastrophic events or temporary delays in reinsurance recoveries. Their appearance as a routine mechanism in Zimbabwe signals deep liquidity stress, weakened balance sheets and an erosion of insurers’ ability to honour obligations, according to one analyst.