Underperformance of the Zimbabwe Stock Exchange (ZSE) in line with economic performance has had a negative effect on Life Assurers that are heavily invested on the local bourse.
Official figures show that the country's 11 Life Assurance companies have 52,80 percent of their asset allocations in equities.
The skewed focus on equities investment has had a negative effect on these firms' investments as the ZSE largely underperformed during the period under review.
The ZSE was largely in 'bear mode' as (foreign) investors either sold off their shares or remained on the fence in respect of ongoing economic and monetary reforms.
This has had a dampening effect on stocks that are heavily invested in by Life Assurers, placing the firms themselves and the insured at risk.
True to form, latest figures from the regulator, Insurance and Pensions Commission (IPEC)'s 2019 First Quarter Life Assurance Report, which highlights weakening asset quality within the sector.
According to the report, total assets for the Life Assurance industry decreased by 2 percent from $3,6 billion as at December 31, 2018 to $3,5 billion as at March 31, 2019.
Reads part of the report:
"This decrease was mainly driven by a decrease in the value of equities from $2,2 billion as at 31 December 2018 to $1,8 billion as at 31 March 2019, which was attributable to the bears market on the Zimbabwe Stock Exchange.
"Fixed properties and equities constituted 73,83 percent of the total insurance industry assets, which is a reflection of the general nature of the liabilities for the sector, which are also long-term in nature."
Despite the apparently skewed asset allocation towards equities, the sector was "considered generally compliant with circular 1 of 2013," said IPEC.
With the equities market accounting for 52,80 percent of Life Assurance firms' asset allocations, property came in to account for 21,75 percent, while prescribed assets accounted for 13,70 percent.
Other investments, money markets and cash accounted for 5,72 percent, 4,24 percent and 1,80 percent of asset allocations, respectively.
Asset allocation essentially entails the process of deciding where to put money to work in the market, and generally equities are recommended for holding periods of five years or longer.
To this extent, the short-term dips in the ZSE should not be of much concern for Life Assurers, who tend to be long-term investors.
The ZSE's cumulative losses during the period under review have been hefty, but market watchers are of the view that the bourse is likely to revert to its safe haven status.
Although poor investment strategies can pose the long-term viability of a Life Assurance company, the insured tend to be protected insofar as the companies are legally required to keep a specified amount of reserves on hand -- capital that's available to pay out benefits in a worst case scenario.
And with reinsurance, some of the firms have shielded their ability to pay out claims.
Nonetheless, IPEC has urged players in the industry to seek out "alternative investments" that can help preserve asset value within the current inflationary environment to shelter policyholder funds.
Read the original article on The Herald.
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