Zimbabwe: Prescribed Asset Requirements Haunt Insurance, Pension Sectors

Finance minister Mthuli, in his 2019 budget presentation, unveiled an upward review of the prescribed assets ratio for the insurance and pensions industry and expected players to be compliant by December 31, 2019, but halfway through the year, the companies are showing no indications of compliance.

While the Insurance and Pensions Commission (Ipec) is seized with the issue of compliance, its half-year report shows that the prescribed assets ratio has become a thorn in the flesh for the beleaguered industry.

Prescribed assets ratio measures the percentage of pre-arranged retirement fund assets that, legally, would have to be allocated to certain government-approved instruments.

Generally they are meant to ensure that subscribing clients and beneficiaries' savings remain secure in the future.

Against the backdrop of improving resource mobilisation to support key national projects, government increased the minimum prescribed asset thresholds. However, they remain an unattainable benchmark for many operators given the currency volatility that continue to bedevil the economy.

The minimum prescribed asset thresholds for both short-term non-life insurers and reinsurers were doubled from 5% to 10%; life assurers from 7,5% to 15%, while funeral assurers increased from 7,5% to 10%.

The minimum prescribed asset threshold for pension funds was increased from 10% to 20%.

Ipec, however, reports that all funeral assurers continued to be non-compliant with the minimum prescribed asset ratio of 10% as announced in the 2019 National Budget Statement.

Only 0,53% of total assets were invested in prescribed assets with the industries' investments in such assets declining by 23,30% to ZW$961 000 from ZW$1,25 million as at March 31, 2019.

Before the increased minimum requirements, Zimbabwe Association of Funeral Assurers (Zafa) president Solomon Chikanda told businessdigest that Zafa had implored government to bring down the then 7,5% prescribed asset requirement for funeral assurers, saying it was way too high and worked against the funeral business model that the industry uses.

"It is proposed that the Prescribed Asset ratio be reduced to 2,5% of total assets from the current 7,5% for the following reasons. The nature of our liability/obligation as funeral assurers dictates that our members invest in the assets that provide funeral services to clients, which include, but are not limited to: Buses, hearse, chapels, funeral parlours, and caskets/coffin.

In pursuit of Asset Liability matching and to enable our members to meet all Policyholder Reasonable Expectations (PREs), investment in the above asset classes takes precedence above all other classes. This is however being compromised by the legal requirement to invest 7,5% in unrelated asset class," he said.

However, government ignored the plea and pushed the minimum requirement upward.

On the other hand, short-term insurers suffered the same fate despite having registered an increase in investments in prescribed assets by 23% to 28,4% from $22,21%. Comparable to last year, only 1 out of 18 short-term insurers was compliant with the minimum prescribed asset ratio of 10%. The reinsurers for the short-term insurers were also struggling with all players falling short.

"On the other hand, premium debtors rose from ZW$48,33 million to ZW$84,90 million during the second quarter, indicating a percentage change of 75,68%," notes Ipec.

On the pensions side, the prescribed asset ratio as at 30 June 2019 was 7,25% -- much lower than the 20% regulatory minimum.

In a country rocked by economic instability and where pensioners and insurers have been robbed through currency transitions for the second time in a decade, analysts have contended that government should relook into these minimum thresholds requirements to ensure confidence prevails in the market whilst ensuring the savings are ring-fenced.

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