PHILLIMON MHLANGA
Zimbabwe’s insurance sector is struggling to comply with the minimum regulatory prescribed assets requirements largely due to inflationary pressures and has proposed the issuance of foreign currency bonds with the same status to drive compliance, Business Times can report.
Zimbabwe Insurance and Pensions Apex Council chairman, David Nyabadza, said prescribed assets have become a thorn in the flesh for the industry.
Prescribed assets are bonds or securities issued by the government, local authorities, quasi-government organisations, or any other bond that may be accorded the prescribed asset status.
“The industry is struggling with prescribed assets compliance due to an inflationary environment and consistent revaluation of assets which new cash flows are failing to match,” Nyabadza said.
He said the representations include the “setting up of absolute targets for different entities to eliminate the moving target and foster better planning” which encourages the capitalisation of entities.
Nyabadza said the sector has also suggested the issuance of foreign currency bonds with prescribed asset status.
“To unlock US$ deposits into the economy all fixed deposits of a specified tenor can be granted PA status with players assessing counterparty risk with the banks on their own,” he said.
Nyabadza said the sector was pushing to work with the government on long term improvement of prescribed asset attractiveness.
Life assurers are compelled to invest a minimum regulatory threshold of 15% of their assets in prescribed assets securities while short-term life assurers and pensions are required to invest 10% and 20% respectively in prescribed assets.
However, they are struggling to meet the minimum required threshold.
At the end of December 2021, life assurance companies’ investments in prescribed assets constituted about 2.84% of the sub-sector’s total asset base.
Funeral assurers had 0.33% prescribed asset ratio while short-term insurance companies and pension funds had 4% and 4.6% prescribed asset ratios respectively.
Commenting on the concerns by the insurance sector players, the Finance and Economic Development Minister, Mthuli Ncube said the financial services sector is a key enabler in the economy’s value chain and as mobilisers of long-term savings, “we expect the industry to take its rightful place as stimulus to economic growth”.
“Government appreciates the concerns that insurers raise regarding the quality of paper we issue, but we also expect the sector to come forward and propose where they would want to invest and the quality that would meet their expectation,” he said, adding that “prescribed assets are a compliance issue”.
“What we do not accept is the sector not complying at all and not proffering suggestions on where they can invest. We note that some sectors within the industry register less than 1% in prescribed asset compliance, and this must be corrected,” Ncube said.
He implored the industry to come up with bankable projects and instruments, including US$-denominated instruments.
