Omega Ukama 
ZIMBABWEAN short-term insurers’ aversion to money markets due to sub-inflationary returns is putting a strain on the sector’s liquidity, latest industry reports show.
In its report for the half-year ended June 2022, industry regulator Insurance and Pensions Commission (IPEC) said while liquid assets in the form of cash and cash equivalents, money market instruments and short-term prescribed assets increased by 263 percent to $7,66 billion during the period under review, liquidity was “low” as measured by an average acid test ratio of 25 percent.
“Eight out of the 19 operational short-term insurers had negative working capital ratios … the low ratio is a cause for concern as short-term insurers face a high liquidity risk, leading to low capacity to meet short-term financial obligations.”
The annual inflation rate at 191,6 percent as at June 30, 2022, remained higher than the rates on savings deposits, which were under 20 percent. As such, money market investments yielded negative real returns throughout the period under review, IPEC said.
As part of measures to promote savings, the deposit rates for domestic savings were reviewed upwards from 12,5 percent to 40 percent per annum, while time deposits rates were increased from 25 percent to 80 percent per annum, effective July 1, 2022.
Still, inflation rose to 285 percent in August, meaning returns in the money market remain “sub-inflation”.
IPEC said total assets reported by short-term insurers increased from $13,95 billion to $58,25 billion during the half-year.
Investments in prescribed assets by short-term insurers increased by 304 percent to $1,94 billion, with only one out of the 19 short-term insurers compliant with the minimum ratio of 10 percent.
Zimbabwe Insurance and Pensions Apex Council chairman David Nyabadza says compliance to the statutory thresholds will take time.
“What we must not lose sight of is that the assets are funded by policy funds. So, there is an interest to protect the value of policyholders and our members do try to comply, but the challenge is with inflation … uptake will be slow because some of them are long-term … but we are happy because our members are invested in hospitals. They are invested in roads as well as venture capital that is looking into agriculture and mining, which are the sectors that drive our economy,” he said in a recent interview with The Financial Gazette.
