THE spotlight will be on the insurance sector as players in the industry embark on capital raising efforts to strengthen their underwriting capacity that was deflated by last year's hyperinflation. 'Over the past six months, eyes were on banks as they raced against time to meet the September 30 deadline.

With most institutions having passed the test, the insurance sector has entered the spotlight with a minimum capital requirement deadline of December 31 on the horizon.

On that date, life assurers should have US$500 000 as minimum capital in the form of cash or listed equities.

Short term insurers should have US$300 000 while funeral assurers should have US$350 000 as minimum capital.

While the amounts appear modest, the sector has not recovered as its growth depends to a large extent on the growth of the real economy.

Players have huffed and puffed in the first half of the year as insurance is being regarded as a luxury with companies trying to keep their heads above the water under the multiple currencies regime.

To date some insurance companies listed on the Zimbabwe Stock Exchange have asked shareholders for a helping hand to increase their underwriting capacity.

Fidelity Life has so far raised US$1.7 million to increase its underwriting capacity as well as to cater for regional expansion.

But NicozDiamond has raised the red flag saying if its proposed US$4 million rights offer does not go ahead, the future of the short term insurer is bleak.

Nicoz will ask shareholders at an extraordinary general meeting to approve a US$ 3 996 074 renounceable rights offer on November 13.

The short term insurer says if the capital raising issue is not implemented, it won't be able to compete on the market due to a weak balance sheet.

It says it will be unable to attract and retain business due to low underwriting capacity and generate adequate revenue to sustain the company's growth.

Life Assurers' Association chairman Livingstone Magorimbo told Standardbusiness the sector is on a recovery path driven by corporates in specific sectors that are reviving policies as a staff retention measure.

He said the mining sector had been quick in reviving policies for staff, while the manufacturing was coming on board slowly.

The Commissioner of Insurance, Mannett Mpofu said the growth of the insurance sector was to a large extent dependent on the recovery of the real sector.

"As long as the real sector's performance remains subdued, this sector will also remain sluggish," she said.

Mpofu said struggling insurance companies were being "encouraged to look for partners both in and outside Zimbabwe so as to strengthen their balance sheets".

Magorimbo said the valuation of insurance assets did not reflect their underlying value. The insurance sector invests money from policyholders on the stock and property markets.

However, the two markets have not been performing well due to the liquidity crunch and this means that the assets underlying the policies are undervalued.

Magorimbo says the industry requires tax incentives not the high charges encountered on the stock market. He says a number of charges should be removed.

Mpofu says high charges eat into reserves meant to benefit pensioners as most of investors on the stock market included pension funds.

"High charges and taxes eat into reserves meant to improve benefits for pensioners," she said.

"The charges and taxes do not necessarily have to be removed but they can be adjusted such that they are comparable to what obtains in the SADC region."

The insurance sector is picking its pieces having spent the better part of last year locked in useless government bonds that were giving negative returns.

In the past, 35% of the sector's assets were in government bonds that was giving returns of 450% per annum at a time official inflation was 231 million% as of July last year.

The issue was rectified in the mid term fiscal policy presented by Finance Minister Tendai Biti in August with the prescribed assets ratio being waived to the end of the year.

Low disposable incomes have also affected the sector. The average salary is US$150 per month, an amount inadequate to meet the daily needs.

This has reduced taking up an insurance policy to a luxury.

The rule of thumb says that 10% of an individual's net salary should go towards insurance.

With salaries prevailing on the market, it means more than half of the country's workforce has to fork out more than the required 10% of net salary in policies.

The sector is also suffering from a credibility crisis after failing to meet their end of the bargain last year leaving policyholders stranded.

Zimbabwe's economic decline over the past few years has resulted in a slow down in economic activity, low industrial capacity utilisation, undercapitalised business operations, high unemployment and suppressed demand for goods and services.

As a result of the economic depression, the first half of 2009 has seen most insurance customers deliberately opting to limit their spending on insurance to only their strategic assets, at minimum levels of cover.

There are 29 short-term insurers, nine life assurers and 13 funeral companies in a market that is picking its pieces.