PHILLIMON MHLANGA
Zimbabwe’s embattled funeral assurance companies are in the eye of a storm after they failed to invest a minimum of 10% in prescribed assets meant to raise funds for national projects, Business Times can report.
Statutory Instrument 206 of 2019 compels funeral assurers to invest at least 10% in prescribed assets with the Insurance and Pensions Commission directing all players to submit their compliance roadmaps.
Despite IPEC approving the roadmaps, it was found that not even a single funeral company has adhered to the plans set for them to address the regulatory concern.
“This is a worrying trend and shows a lack of commitment towards compliance,” IPEC said.
Official data obtained from IPEC shows that funeral companies’ investments in PAs were insignificant as they accounted for only 0.03% of the total asset portfolio at the end of September 2020.
It was found that most funeral assurers were deploying their funds to property investment portfolios, which was the largest component of assets held by funeral assurers at the end of September 2020.
Their combined investment stood at 85% of the total asset portfolio while the balance was held in other asset classes such as equities, cash, and money market investments.
IPEC, however, warned funeral assurers “to ensure that their property investments are not encumbered so that they are admissible in assessing the capital levels”.
Although local inter-company investments contributed to the overall net positive movement in the asset base, IPEC, warned that funeral assurers needed to manage inter-company receivables and prevent them from constituting a significant portion of their balance sheets because the risk exposure associated with such transactions could result in policyholders being prejudiced, should the subsidiary companies fail to honour the obligations.
Furthermore, having such transactions, IPEC said could result in funds being tied up in non-interest earning investments, a situation that is detrimental to the need to build a strong policyholders’ fund, especially under the current volatile economic environment.
Total assets for the funeral assurers increased by 27.10% in the period under review to ZWL$769.75m from ZWL$605.62m reported at the end of June 2020.
The positive movement in assets, according to IPEC, was mainly due to an increase in accounts receivables, which were largely in the form of pre-payments for funeral services provisions with their associate or subsidiary companies both in the country and outside the country.
IPEC said it would continue lobbying the government to allow for the development and introduction of prescribed asset instruments that preserve policyholder value.
Government has since enacted Statutory Instrument 280 of 2020, which is one such initiative that should be considered in value preservation and ensuring that policyholder premiums and benefits are not eroded in the foreseeable future.
The sub-sector has also been struggling to meet the minimum capital regulatory requirement.
Out of eight registered funeral assurers operating in Zimbabwe, only three -Moonlight, First Funeral and Sunset-had capital positions above the regulatory minimum threshold of ZWL$62.50m as prescribed in Statutory Instrument 59 of 2020.
IPEC has also accused funeral assurers of understated their actuarial liabilities.
“…Certain funeral assurers reported future policyholder benefits in their retained earnings, resulting in future policyholder benefits being reported under equity subsection yet they should be reported under the liability subsection.
“This then gives the impression that funds under management belong to the shareholder, when in fact, they are liabilities that are to be met in future. This inherent risk is that it could lead to incorrect decisions being made owing to this misalignment.
“Actuarial liabilities could also be understated given the asset-liability matching concept, where the rate of increase in assets does not match the rate of increase in liabilities. This may have resulted in premature transfer of value from policyholders to shareholders,” IPEC said.
They have also been advised to ensure that their liabilities are valued in line with the Guideline issued by IPEC to ensure that they hold adequate technical reserves all the time.
During the nine months to September 30, 2020, the funeral assurance sub-sector was dominated by two firms- Moonlight and First Mutual- which controlled about 80.90% of the total gross premium written.
