Insurers get waiver on capital to fend off Covid hurdles

Treasury Secretary Ukur Yatani. FILE PHOTO | NMG

Summary

• Insurers have been exempted from complying with capital requirements for six months as they face increased claims and reduced collection of premiums in the coronavirus-battered economy.
• This means that insurers who fail to meet the capital thresholds will not risk losing their operating licence.
• The short-term waiver is meant to give the underwriters time to adjust to the difficult business environment, easing the pressure to raise more capital for those who were barely compliant.

Insurers have been exempted from complying with capital requirements for six months as they face increased claims and reduced collection of premiums in the coronavirus-battered economy.

This means that insurers who fail to meet the capital thresholds will not risk losing their operating licence.

The short-term waiver is meant to give the underwriters time to adjust to the difficult business environment, easing the pressure to raise more capital for those who were barely compliant.

“The Cabinet Secretary for the National Treasury and Planning exempts all registered insurers from the provisions of section 41 of the Act for the period commencing on July 1, 2020, and ending on December 31, 2020,” Treasury Secretary Ukur Yatani said in a legal notice dated August 5, 2020.

The suspended section of the law requires insurers to maintain a capital adequacy ratio of 100 percent at all times, taking into account multiple risks including underwriting, market, credit and operational.

Outbreak of the Covid-19 pandemic in mid-March has posed a challenge for insurers, raising claims including from customers dying or hospitalised after contracting the disease.

The problem has been compounded by difficulty in collecting premiums as individuals and businesses suffer reduced income in the wake of the pandemic.

Hundreds of thousands of people have been sacked or their salaries reduced as the economic fallout started in the tourism, transport, education and entertainment sectors before spreading to the broader economy.

Businesses have also suffered reduced profitability and sales decline, resulting in default or slower payment of premiums for various insurance covers.

“The insurance industry just like any other is going through a difficult time because of Covid-19 which in itself has caused an increase in claims,” an insurance executive told Business Daily.

“The regulator (Insurance Regulatory Authority) had asked us to accommodate customers finding it hard to pay their premiums. All these have an impact on insurers’ capital and that is why the waiver was issued.”