Prescribed Assets headache for life assurance firms

PHILLIMON MHLANGA

Zimbabwe’s life assurers are struggling to comply with minimum regulatory prescribed assets requirements, largely due to the quality of assets in the market and liquidity challenges, Business Times can report.

According to the latest Insurance and Pensions Commission (IPEC) report, only three out 12 registered life insurance companies complied with the prescribed asset ratio of 15% of total assets value in the quarter to December 31,2022.

These are Nhaka, which reported a 61.8% compliance rate, Fidelity Life Assurance (16%) and Econet Life (16.7%).

Combined, all life assurance companies invested a total of ZWL$26.6bn in prescribed assets in the quarter to December 31, 2022, translating to a sector compliance level of 11.5%.

Prescribed assets are bonds or securities issued by government, local authorities, quasi-government organisations or any other bond that may be accorded the prescribed asset status.

“Three out of the eleven life assurers were compliant with the minimum prescribed asset ratio of 15% of adjusted assets.

“Nhaka, Fidelity and Econet Life Assurance companies reported 61.8%, 16% and 16.7% of prescribed asset investments, respectively,” part of the report reads.

It said the introduction of gold coins among other financial instruments which have been accorded prescribed asset status, was expected to drive the compliance ratio.

The Commission is constantly monitoring the uptake of prescribed assets through the submission of monthly updates by players.

Prescribed assets investments are an important resource mobilisation tool for funding projects of national importance for socio-economic development.

The Commission encourages life assurance entities to invest in value preserving projects which have been accorded prescribed asset status as a way of ensuring both compliance and policyholder value preservation.”

In the period under review, the life assurers sector swung to a loss of ZWL$ZWL$276.6bn from a profit of ZWL$31.7bn reported in prior comparative period mainly due to huge transfers to liability provisions.

The combined ratio for the life assurance sector decreased from 130% for the year ended 31 December 2021 to 77% for the comparable period in 2022, indicating an increase in the underwriting margin.

This position is after adjusting for transfer to reserves, which were very significant in the period under review.

Total current assets stood at ZWL$40.5bn in the period under review compared to ZWL$26.5bn in the previous year.

Current liabilities amounted to ZWL$141.6bn, translating to negative working capital of ZWL$101.1bn, for the period under review.

The life assurance sector’s average current ratio was 28.6% as at December 31, 2022, showing insufficient liquidity to cover short-term contractual obligations as they fall due.

Liquidity is important for sector entities as it helps to ensure smooth daily operations, therefore sector players should strive to always maintain adequate liquidity.

During the period under review, Nyaradzo Life Assurance Company dominated the sector with a market share of 45.8% in terms of gross premium written (GPW), with the other entities sharing the balance.

The market leaders in terms of GPW, are entities whose main business portfolio is funeral assurance, highlighting the dominance of the funeral assurance business in the life assurance sector.