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The Bank of Zambia (BoZ) has revealed that most insurance companies in the country are struggling to meet the new capital adequacy requirements mandated by the Insurance Act of 2021 and the Insurance (General) Regulations of 2022.
According to BoZ’s October 2024 Financial Stability Report, the legislation requires insurers to hold a minimum available capital of 150 percent of their minimum capital requirement.
However, only a few firms have so far complied.
The central bank expressed concern that failure to meet this benchmark by the end of the transition period in 2025 could weaken the resilience of Zambia’s insurance sector.
“The new legislation requires insurers to hold a minimum available capital of 150 percent of their minimum capital requirement, which only a handful of insurance firms have achieved thus far,” the report stated.
BoZ identified stagflation as another significant risk to the insurance sector, citing its impact on consumer spending.
Higher living costs are forcing households and businesses to prioritise necessities over insurance products, further straining insurers’ revenues, profitability, and liquidity.
“This could pile pressure on their gross written premiums and profitability.
“Subdued income growth may also lead businesses to fail to honor contractual obligations guaranteed by insurers, increasing claims on performance bonds and guarantees, thereby affecting liquidity and profitability,” BoZ warned.
Despite challenges in the insurance sector, BoZ noted that Zambia’s private pension industry remained relatively stable.
The industry recorded a four percent growth in net assets, reaching K18.4 billion in the three months to June 2024.
However, profitability in the pension sector declined, with investment income shrinking by 27.9 percent and net returns on average net assets falling to 16.5 percent.
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