Insurers’ capital decree draws mixed reactions
Reserve Bank of Malawi (RBM) proposal to hike minimum capital requirements for insurers has drawn mixed reactions with one of the life insurers, Smile Life Insurance Company, wholly-owned by Malawians, branding it “financial defilement” to small financial market players.
The proposed requirements, which are set to be effected between December 2015 and December 2016, will see general insurers’ capital requirements rising by 1 400 percent to K750 million (1.4 million) from K50 million ($90 580), life insurers from K75 million ($135 870) to K1 billion ($1.9 million), representing a 1 233 percent rise and reinsurers will have to part with K1.5 billion from K100 million ($181 159), which is a 1 400 percent jump.
Smile Life Insurance chief executive officer Stain Singo, who was one of the panellists at Insurance Institute of Malawi (IIM) Annual Conference in Mangochi on Friday on the proposed revised capital requirements, noted that the reasons for the regulator to set minimum capital and solvency requirements are important to protect consumers and the industry and ensure sanity.
Other panellists were Louis Sibande, chief finance officer at Nico General Insurance Company Limited, EfremChilima, senior private sector development specialist at World Bank and Elton Jangale, barrister and Public Private Partnership(PPP) practitioner at PFI Partnerships Law Consults.
Despite the move being progressive, Singo said it is the levels at which these requirements are pitched and who drives the agenda which is important.
“One would want to know what consideration is taken into account when arriving at the minimum levels and who really determines the levels,” he said during the discussion.
But in an interview yesterday, Singo said they have had discussions with RBM as a company, and also through Life and and Pensions Association of Malawi (Lipam) and thus far, discussions have been positive and the regulator has been accommodative and receptive to their views.
“The minimum capital requirement as being proposed that is one-size- fits-all is not ideal, perhaps consideration should be a risk-based capital requirement approach. “With this approach, both big foreign-owned companies and the locally-owned companies will be given an opportunity to do business in the market,” he said, adding that already they have been approached by foreign investors seeking to buy 70 percent stake in the company, which means it could no longer be locally owned.
On his part, Sibande, who said his views do not represent the company he works for, said RBM’s move is aimed at protecting interests of the wider public.
“We need to look at the wider interests other than the interests of the minority,” he said.
Chilima, on the other hand, said the need to raise exists, but argued the jump has been huge because some insurance companies are not financially solid.
He said if the capital requirements are maintained at below the required international threshold “when the doors open, our insurance industry will be wiped out”.
Jangale said the raise is a good thing for the local insurance industry as it will help it to go regional, taking into account low penetration levels at below five percent.
But he said the huge raise can be challenged, arguing that the regulator had gone to sleep when it could have raised the capital requirements in bits and pieces over the years.
