High claims hit short-term insurance companies

FIRST Mutual Holdings Limited (FMHL) says its short-term insurance business has seen an increase in the value of claims due to foreign exchange rate movements on the parallel market.
This comes as parallel market rates for bond notes and domestic bank balances against major currencies have deteriorated since October last year when the central bank ring-fenced RTGS$ bank balances and Nostro FCAs.
According to Marketwatch, a team of independent analysts whose primary focus is research into the Zimbabwean parallel markets, the exchange rate for the RTGS$ against the United States dollar in the unofficial market closed the year at around 1:2,7 after spiking from about 1:1,8 before October.
“In the short-term insurance business, there was an increase in claims after the October revolution, this was driven by parallel market premiums,” Douglas Hoto, FMH’s chief executive, told analysts recently in a presentation of the group’s financial results for the year ended December 31, 2018.
“These significant increases came about because panel beaters and the other service providers simply multiplied the prices of their services by five, six or whatever they felt was appropriate,” he said.
The group’s results showed that its net claims for the year amounted to $88,7 million, which was a 25 percent increase from claims of $71,1 million realised in the prior period.
In a bid to correct the situation, the monetary authorities in February this year went on to redenominate bond notes and local bank balances into a new currency in the country’s multicurrency system, the RTGS$.
The apex bank also introduced an interbank market on which this currency can be traded against major currencies. This seems to have made the situation worse after the discount of the RTGS$ against major currencies in the parallel market continued to deteriorate.
As of Friday last week, Marketwatch said the rate had climbed to 1:4,8. Still, the exchange rate on the interbank market, which opened in February at 1:2,5, is not that much friendlier at 1:3,1.
Meanwhile, FMHL said it has been hurt by the loss of value on prescribed assets and other monetary assets required for regulatory compliance.
“The prescribed assets remained at 1:1, they have not been revalued,” Hoto said.
Following the announcement of the monetary policy statement on February 20, 2019 government gazetted Statutory Instrument 33, which gave effect to the introduction of the RTGS dollar as legal tender and prescribed that “for accounting and other purposes”, certain assets and liabilities on the effective date would be deemed to be RTGS dollars at a rate of 1:1 to the US dollar and would become opening RTGS dollar values from the effectiv