AN INSURER’S LICENCE REQUIREMENTS

WHO OR WHAT IS AN INSURER?

An insurer is defined by the Insurance Act as “a company that carries on insurance business”. This of course gives rise to the question that begs for an answer as to what constitutes insurance business.

Well broadly speaking insurance business means the act of underwriting risks and includes the issuance insurance policies.

An insurer may be licensed either as a long-term insurer or a general insurer (formerly referred to as life insurer or non-life insurer respectively).

LEGAL PERSONALITY

You will obviously recall that in the definition of an insurer there lies an implied notion that an insurer will necessarily be a body corporate. This in fact is a cardinal licensing requirement in Zambia.

Every applicant for an insurers licence must be a shares limited liability company by shares and duly registered with the Registrar of Companies.

DIRECTORS AND CEO

The Pensions and Insurance Authority (PIA) will assess the suitability of the prospective Directors and Chief Executive Officer (CEO) of the applicant for an insurer’s licence. The Authority reserves the right to decline approval of any proposed Director or CEO.

Generally a person with a record of conviction under any of the laws of Zambia will be considered unsuitable. The Authority conducts reference checks on the proposed individuals to investigate whether or not there is a known history of dishonesty. Further a person that is bankrupt cannot be a Director or CEO of an insurance company. Persons that have in the past been associated with company failures are considered unsuitable unless there is sufficient mitigation.

Further the Authority may reject the appointment of a Board of Directors if its composition does not have attributes to ensure good corporate governance.

MINIMUM CAPITAL REQUIREMENT

In evaluating the minimum capital requirement two positions are considered:

Ø  At set-up before commencing operations, and

Ø  During the on-going operational life of the insurer.

At inception when the applicant insurer is applying for its very first licence, the admitted assets of the applicant must exceed the admitted liabilities of the applicant by at least Kwacha One billion (K1billion).

Admitted assets are defined as the total assets excluding intangible assets and other specified by the Insurance legislation. Similarly admitted liabilities are the total liabilities excluding the shareholders capital and others specified by legislation.

Where an insurer has been in operation for any length of time prior to evaluation the standard is as follows:

Ø  For a General Insurer its admitted assets must exceed the admitted liabilities by at least 10 per centum of the admitted liabilities, and

Ø  For a Long-Term insurer its admitted assets must merely exceed its admitted liabilities.

An insurer that does not meet or exceed these benchmarks will not be allowed to operate.

REINSURANCE PROGRAMME

Every insurer must furnish the Authority with details of its confirmed reinsurance treaty arrangements with local and international reinsurers. An insurer has to make this disclosure within the first 3 months of each year.

Reinsurance allows an insurer in turn insure some of the risks acquired through its underwriting book of business. An insurer will always exercise prudent risk management by trying to delicately achieve a balance that will minimise adverse loss experience whilst also ensuring reasonable and sufficient profit for the shareholders.

The constraints are that the more business that an insurer cedes to reinsurers the less profit it can make from the remnant retention. Conversely the lower the reinsurance ceded the more adverse will the effect of bad loss experiences be.

The insurer’s reinsurance treaty will traditionally be limited in scope and magnitude to commonly occurring reinsurances. However, the insurer will underwrite risks requiring reinsurance generally excluded from reinsurance treaties. Such risks are thus reinsured by means of facultative reinsurance.

INVESTMENT POLICY

Every insurer must submit for approval to PIA the investment policy or any amendments thereto. The policy must insurer that the policyholders’ interests are taken care of with regard to:

Ø  Capital growth for long-term insurance, and

Ø  Liquidity to meet insurance claims promptly.

The Authority may ask an insurer to enhance its investment policy if it is considered inadequate.

EXTERNAL AUDITOR

Every insurer is required to submit audited financial statements and insurance returns annually. As such they are required to submit the particulars of the external auditors they intend to appoint for approval by PIA. The Authority has the statutory right to decline the appointment of a particular auditor on grounds of previous poor performance.

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