ZIMBABWEAN insurers and pension funds have been forced to helplessly watch their books’ value get eroded by rising inflation, as regulators’ investment rules restrict their ability to save the situation.
The country’s inflation increased to a 10-year record of 66,8 percent in March 2019, after gaining 61,4 percentage points since the beginning of October 2018.
Players in the local insurance and pensions industry say the high inflation has been eating away their balance sheets value and they have not been able to do much about it.
“One of the challenges for the local insurance and pensions sector is the issue of regulatory restrictions in investing. In an inflationary environment, funds that are not adjusted quickly will suffer through the loss of value,” Chakanyuka Nziradzemhuka, the chief strategic officer at the National Social Security Authority (NSSA) told a workshop last week.
“One such restriction is the rule on prescribed asset ratio. It says we are largely supposed to be in fixed income securities,” he said, adding that another unfavourable rule was “the one that says you can only invest up to 10 percent of your funds offshore”.
This comes as a serious foreign currency shortage has inhibited the operations of businesses in various sectors in the economy.
This is premium content. Subscribe to read article.
According to the Insurance Act, “every insurer shall in respect of the insurance business carried on by him in Zimbabwe, hold the insurance fund in prescribed securities and in such proportions of prescribed securities as may be specified by the minister”.
The Pension and Provident Funds Act also provides that an insurer “which carries on pension and provident fund business shall at all times hold not less than 35 per centum of its assets, which are assets in Zimbabwe and which have been designated as being assets of the pensions fund of that insurer” and in specified securities or loans.
First Mutual Holdings Limited (FMHL) said it has also been hurt by the “loss of value on prescribed assets and other monetary assets required for regulatory compliance” due to rising inflation.
“After the recent monetary changes, the prescribed assets remained at 1:1, they have not been revalued,” Douglas Hoto, the financial services group’s chief executive, said recently.
Following the announcement of the monetary policy statement on February 20, 2019 government gazetted Statutory Instrument 33 of 2019, which prescribed that certain assets and liabilities would be converted to RTGS dollars at a rate of 1:1 to the US dollar.
In an apparent response to the situation, FMHL recently announced that it is in the process of relocating its reinsurance business, First Mutual Reinsurance Company (FMRE), to Botswana in order to escape the “limitations of the local operating environment”, and to expand the horizon of the business.
The Insurance and Pensions Commission (IPEC), however, argues that the set investing parameters have played a critical role in the mobilisation of resources locally.
“About 80 percent of commercial buildings in every city in Zimbabwe are owned by the players in the insurance and pensions industry.The sector plays a critical role in the development of infrastructure through the mobilisation of resources via prescribed assets,” Cuthbert Munjoma, the executive assistant to the IPEC commissioner said at the same workshop.
newsdesk@fingaz.coSubscribe to The Financial Gazette