PHILLIMON MHLANGA
The closure of the Zimbabwe Stock Exchange (ZSE) last June wiped off over ZWL$2bn from local life assurance companies’ equities investments, a new report has shown.
Government shut down the ZSE in June,2020 in a move that shocked investors.
President Emmerson Mnangagwa’s administration said the move was part of efforts to protect the Zimbabwe dollar which was in a free fall.
Government accused ZSE and EcoCash, a mobile payment platform, of collaborating to sabotage the country by causing the collapse of the local currency and runaway inflation through illegal parallel market exchange rates.
It also blamed the Old Mutual Implied rate, which was a rate implied by market participants when they traded in Old Mutual Limited shares and other dual listed counters such as PPC and Seed Co International Limited.
Government also suspended the three counters, accusing them of undermining the integrity of the markets and the country at large.
The local bourse, however, resumed trading in August, without the three listed counters but the damage had already been done as stock values decline.
There were massive sell off on the local bourse due to confidence flight.
Consequently, the decline in value that was suffered by life assurers was the steepest in 2020.
“For the first time in 2020, value of equity investments decreased by ZWL$2.1bn from ZWL$23.07bn reported as at 30 June 2020 to ZWL$20.97bn reported as at 30 September 2020.
“The decrease in the value of equities held by the life assurance industry maybe as a result of a combination of decrease in valuations of share prices of counters on the Zimbabwe Stock Exchange and reduction of equity holding from investment portfolios of life assurers, as players realign their investment portfolios following the uncertainty caused by temporary suspension of trading on ZSE in June 2020,” read part of the report done by the sector regulator, the Insurance and Pensions Commission (IPEC).
Investments in the fixed properties and equities constituted 74.38% of the total assets for life assurers during the nine months to September 30, 2020.
IPEC suggested that the life assurance sector should ensure that the profile of their assets closely match the maturity profile of their liabilities.
“As the life assurance industry gravitates towards offering products with shorter terms than they used to, there is need to ensure that this is also reflected in the maturity profile of assets.
The Commission encourages players to continuously adhere to the requirements of circular 1 of 2013 and align their investment policy statements to the dictates of the circular as much as possible.”
The sector’s gross premium written (GPW) from traditional life assurance business excluding pension business grew by 873.38% in nominal terms in the nine months to September 2020 to ZWL$2.004bn from ZWL$205.92 reported in the same period in 2019.
But, on inflation-adjusted basis, the growth in GPW was negative 28.18%, an indication that growth in GPW lagged increases in inflation.
The main drivers of nominal growth in GPW for the period under review were funeral assurance business and group life assurance.
Total assets for the Life Assurance sector at the end of September 2020, stood at ZWL$61.26bn, representing a 24.79% growth from ZWL$49.09bn reported at the end of June 2020.
The growth was largely driven by increases of ZWL$6.4bn and ZWL$4.8bn in the values of fixed properties and other investments respectively during the reviewed period.
The sector had a total of 2.52m lapsable policies during the nine months to September 30,2020.
Of these a total of 229,771 policies lapsed, translating into a lapse ratio of 9.21%.
This lapse ratio compares unfavourably to the lapse ratio of 8.21% recorded in the comparative prior period. Out of 12 registered life assurers, nine players were capital compliant at the end of September, meeting the ZWL$75m minimum capital threshold.
Adequate capitalisation is crucial for a strong life assurance sector that is resilient to endogenous shocks and it also helps to cushion the industry against exogenous business shocks, IPEC warned.
The sector regulator has directed non-compliant entities- Nhaka, Evolution and Heritage, which failed to submit its reports, to develop capitalisation compliance roadmaps which the Commission will closely monitor to ensure compliance. ffffff
