Emergent risk from the currency reforms that culminated in the re-introduction of the Zimbabwe dollar in 2019, saw an increased number of reinsurers passing on risk to retrocessionnaires.
Retrocession insurance is when reinsurers insure their portion of risk, thereby creating multiple levels to an insurance agreement.
Although retrocession can be beneficial in terms of buttressing protection for insurers, there are always risks that a retrocessionnaire might not have adequate capacity to handle an excessive amount of risk.
According to the Insurance and Pensions Commission (IPEC)'s non-life insurance third quarter report, there was a notable increase in retrocession agreements in the three months to September 2020 from the prior comparable period.
"The amount of business ceded to retrocessionnaires also grew by 552,03 percent from $90,58 million as at September 30, 2019 to $590,62 million as at September 30, 2020," noted the regulator.
The official numbers show that although the local reinsurance industry's retention ratio is high, a breakdown shows the distribution is scatter-gun.
"The industry's average retention ratio was 71,30 percent for the quarter ending September 30, 2020 compared to 69, 22 percent that was reported the same period in 2019.
"The individual reinsurers reported retention ratios ranging from 35,28 percent to 95, 14 percent for the nine months ended September 30, 2020," reads the report.
The insurance industry, like most businesses in the country, has been struggling with the attendant effects of a raft of monetary and fiscal policy changes over the last couple of years, but particularly from last year.
The country reverted to the exclusive use of the Zimbabwe dollar last June from a multi-currency system that had been adopted in 2009. The Zimbabwe dollar was re-introduced through Finance Act No.2 of 2019 and Statutory Instrument 212 of 2019, which provides for exclusive use of the Zimbabwean dollar to settle all domestic transactions as well as penalties for failure to do so.
But adjustments have since been made to allow for US dollar transactions, alongside the Zimbabwe dollar, through Statutory Instruments 85, 185, 196, and now 280 specifically for the insurance and pensions sector.
Over the period under review, Zimbabwe's reinsurers recorded increase in business, but they then moved to insulate themselves from the emergent inflationary pressures by engaging retrocessionnaires.
"The significant increase in business written by the reinsurers between 2018 and 2019 was on account of currency reforms," added IPEC.
For the third quarter, the total business written by reinsurers -- in Zimbabwe dollar terms -- increased by 599,23 percent from $294,32 million for the nine months ended September 30, 2019 to $2,06 billion for the comparative period in 2020, the report shows.
"The increase in the volume of business by reinsurers is in line with the 634,94 percent nominal growth in the business written by the direct short-term insurers during the two comparative periods," said IPEC.
And with regards to gross premium in terms of foreign currency denominated business, the regulator said of the eight short-term reinsurers, only five submitted their foreign currency denominated quarterly returns in line with the requirements of Circular 15 of 2020. Total GPW by these reinsurers amounted to US$33,81 million. Zimbabwe's reinsurance sector is dominanted by three companies, namely Zep-Re, Emeritus Re and FBC Re, which have a combined market share of 50,39 percent.