Entebbe- Insurance Regulatory Authority (IRA) has warned insurers that no premium debt will be recognised as assets on their books after November.
IRA in January introduced the cash and carry regulation, which required that all insurance companies stop providing insurance on debt and only sell insurance to the public on a cash basis.
Speaking to accountants during the 24 annual certified accountant’s seminar in Entebbe, Mr Protazio Sande, the IRA director market research and development, said all insurance companies shall not be expected to include premium receivables under their asset books after November 30.
“I already mentioned that November 30 is the cut off for legacy debts and we expect those ones who are auditing insurance firms not to make provisions for legacy debt come December 31, 2019,” he warned explaining that receivables had reduced from more than Shs147b in 2017 to Shs132b in 2018.
It is not certain how much is currently outstanding in premium receivables.
Premium receivables is money owed to insurance companies by a policy holder for a policy.
In 2015, outstanding premium receivables increased by Shs25b from Shs100b in 2014 to Shs125b in 2015.
In 2017, premium receivables were the third largest asset class making up Shs148.9b of general insurers’ assets composition valued at Shs1 trillion and only 2 per cent for life insurers. Inclusion of the debt into the insurance companies’ books creates a wrong impression of the industry that largely relies on liquidity.
This in essence affects the ability of insurance firms to pay claims if most of its money lies in debt.
Mr Sande emphasised the regulation seeks to attain a strong financial sector through protecting policy holders in relation to claims settlement as well as liquidity for insurers who need money for investment.
Ms Mariam Nalunkuuma, IRA spokesperson reiterated Mr Protazio saying the regulator will not expect to see any debt in premiums on the books of accounts.
“If they have any debts they have not yet collected, we do not expect to see that on the books of accounts. What we want to see is the money they have actually have. This will protect both the insurance firm and policy holders, which is the role of the regulator,” she emphasized.
Any uncollected premiums will however be added to the books of accounts of insurers if paid in the following periods.
If the debts are not settled, based on the new regulation, insurance companies are likely to dip in asset value come December 31.
Mr Fredrick Kibbedi, president Institute of certified public accountants welcomed the cash and carry regulation saying it makes work easier for accountants.