PHILLIMON MHLANGA
Zimbabwe’s insurance and pensions industry has not been able to ascertain accurate asset values due to recent currency reforms, something which could have bigger consequences for policyholders.
The market volatility and recent currency reforms which saw the return of the Zimbabwe dollar last year, have combined to increase the risk of asset impairments in the sector.
Experts said determining the correct value for assets was a nightmare using the current model. They said the model is no longer relevant and is outdated. Apparently, this has in part contributed to poor benefits paid out by most pension funds.
The headache appears to be spread across all asset classes. A sharp downturn in stocks, money market and properties, have been observed as a result of the economic crisis.
Valuation of these assets have come under spotlight with experts calling for new asset valuation model.
The commissioner of Insurance and Pensions Commission (IPEC), Grace Muradzikwa, who spoke at a virtual media mentorship meeting acknowledged that the sector faced a “real challenge” in valuating assets accurately.
The challenge poses a serious quandary for policyholders and investors.
“The valuation challenge is quite an issue for us,” Muradzikwa said.
She added: “We want to ensure consistency in evaluation (because) pension funds use different methods. It’s an area that is currently under the microscope.
“I can assure you that we have engaged. It’s an area we have been liaising not only with the Actuarial Society of Zimbabwe but also the Valuers Council of Zimbabwe.”
Also speaking at a pensions meeting, IPEC director of pensions, Cuthbert Mujoma, said: “This (currency reforms) has adverse impact. If you try to understand the pension values between 2009 and 2019 there are challenges. We have engaged valuers to understand how these values come about.
Actuaries echoed Muradzikwa sentiments and have called for a new asset valuation model, which should help lift the market.
Several valuation techniques have been suggested including the discounted cash-flow models.
“This current valuation model is difficult to implement and we are only playing the victims card. We need a model which works for our environment,” David Mureriwa, an independent actuary said.
He added: “We are running a pension model which has been negatively impacted by currency reforms.
“The current model is no longer relevant. It’s outdated. It was applicable when the environment was stable. Pension’s model works well when we have economic stability.
“Apparently, when it comes to valuation, its two sided that is the valuation of assets and liabilities. Valuation of assets such as stocks takes the market value placed on it. On the liabilities side, the Defined Contributions Plan take the value placed on the assets. But, on the Defined Benefit side, we are having challenges making long-term assumptions, especially the financial ones. We are working on an investment where there is no reference point because we don’t have a long-term government paper where we can say, for example, our discount rate is 10% because the government paper is 30 years, just for example.
“So, it makes the current model difficult to implement. Players are just playing the victims card.
“It seems the pension model is also inappropriate. Our fundamentals are somehow wrong raising the question about whether we valuating these assets correctly.”
Zimbabwe Association of Pension Funds director general, Sandra Sevenzo, said: “It’s quite a big issue in the sector and it raises the question whether we are valuing the assets correctly.”
The Zimbabwe Stock Exchange head of business development, Anymore Taruvinga, said: “The loss of value is the biggest concern due to hyperinflation. We have seen negative returns in real terms as interest rates are suppressed, issues of instability affect businesses and there is lack of liquidity for the asset class.”
The development come at a time when there has been no clear line in terms of assets ownership in the sector. The insurance and pensions industry players have not been separating assets belonging to policyholders and those belonging to shareholders.
This, Muradzikwa said was disturbing.
IPEC has since enforced, through a circular, asset separation in the sector.
