The insurance sector performance was burdened over the six-month period to December 2021 as players faced credit and liquidity vulnerabilities due to high insurance receivables.

The situation, which the Insurance Association of Malawi has  linked to the harsh economic realities induced by Covid-19 pandemic, has been revealed by the Reserve Bank of Malawi (RBM) in its Financial Stability Report, covering the period  between July and December 2021.

According to the central bank, though the liquidity improved in the six months to December 2021 with its  ratio growing  to 85 percent from 79.9 percent reported in June 2021, the ratio remained weak as it was below the minimum regulatory requirement of 100 percent.

Said the Bank: “High insurance receivables continued to weaken liquidity for the sector as only two general insurers reported a liquidity ratio above the recommended minimum benchmark. The poor liquidity affects the sector’s ability to pay for claims and other obligations when they fall due.”

Insurance Association of Malawi vice president Addul Mageed Dyton in an interview said a lot of its clients operated below their capacity hence insurance companies failed to service their insurance premiums.

He said: “In view of the tough economic environment insurers were left with uncollected debts which affected their liquidity ratios.  On the other hand, our investment income was reduced as  such the money collected could  be invested to earn more income.

“We have also had a challenge with operational costs which have increased as we have to employ debt collection services to collect outstanding premiums.”

The RBM data further shows that, the sector’s investments with one suspended portfolio manager continued to be a threat to the sector as the investments were yet to be liquidated.

Dyton was, however, assured clients that insurance companies in Malawi have capacity to meet their insurance contract obligations.

“We are, however, upbeat with an outlook which looks promising  for the insurance sector as the economy is rebounding from Covid-19 shocks. Clients have now started to pay their premiums and the liquidity ratios will improve,” he said.

Meanwhile, in view of the subdued performance, RBM Governor Wilson Banda, who is the registrar of financial institutions, said he will continue the multi-pronged engagement with the sector to address existing and emerging risks.

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