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Prosper Ndlovu Bulawayo Bureau

DETERMINING the real value of assets or investments has become a nightmare for the country’s insurance and pensions industry in view of the prevailing currency volatility, which makes harmonisation of business models difficult as entities seek to hedge against inflation, industry experts have said.

While the local currency is inching towards stability at around US$1:$83 in the last few weeks following the introduction of the foreign currency market auction system in June, which is fast gaining private sector endorsement, external shocks such as Covid-19 and macro-economic challenges continue to pile pressure on the economy, making future projections uncertain.

Under this environment, investment portfolios for the pensions and insurance sector have come under the spotlight with a call for diversification of portfolios to preserve value and ensure that policy holders enjoy sustainable benefits from their savings.

“Indeed, the valuation challenge is an issue concerning us as a Commission and I can assure you that we have engaged . . . even when it comes to evaluation of properties, you know if you engage three valuers in Zimbabwe you can come up with different values,” said Dr Grace Muradzikwa, who heads the insurance, pension and provident funds unit at the Insurance and Pensions Commission (IPEC). She was responding to questions from our Bulawayo Bureau during a recent virtual media mentorship programme.

“It’s an area where we have also been liaising not only with the Actuarial Society of Zimbabwe, but with the Valuers Council of Zimbabwe so that we can reach an understanding on valuation guidelines. And also, where you have different pension funds using different valuation methods, we want to ensure consistency in evaluation. It’s an area that is under the microscope.”

Dr Muradzikwa admitted that inflationary pressures have resulted in widespread loss of value especially for monetary assets, which has discouraged uptake of insurance products.

Companies have also been defaulting in remitting pension contributions they deduct from workers. She, however, said guidelines have been put in place to ensure that surviving assets such as  properties and equities were properly utilised for the benefit of policy holders.

“The pensioners’ loss of value is an area where as a commission we are committed to ensuring reasonable payouts. We issued a revaluation guideline beginning this year and a statutory instrument, which is now going to force all pension funds to revalue all their surviving assets and to redistribute those assets to pensioners,” she said.

“We have also been enforcing compliance on assets separations of pension funds and insurance companies. It’s a statutory requirement that there should be separation of assets, which should be clear that these belong to shareholders and these belong to policy holders. If there was compliance over this, we will not be having some of the issues we are having now.”

Dr Muradzikwa said the commission was disturbed by the number of cases where there has been no separation of assets. Under such a scenario, she said some of the re-evaluation gains on surviving assets such as property portfolio and equities, have been distributed to shareholders.

“What we have been enforcing first of all is compliance with asset separations so that we have the clear assets belonging to policyholders and those belonging to shareholders.

“After that we have now been enforcing revaluation of those assets so that we have the property class, equity class and that they are revalued and revaluation gains redistributed. That way, we are hoping pensioners are going to get value from surviving assets,” she said.

Inflation poses a threat to the viability of the insurance and pensions sector and should this persist, the implication is that the industry would likely face low uptake of insurance products. This means revenues are going to be suppressed because of inflation, a situation which demands that industry players come up with robust mitigation measures to keep afloat and maintain positive solvency levels.

Dr Muradzikwa however, said so far, the growth in premiums in the sector was ahead of inflation. Official statistics show that the pensions sector recorded a 843 percent growth in asset base between June 2019 and June 2020, which was above the June 2020 annual inflation rate of 732 percent.

For instance, the insurance sector paid about $726 million in claims from April to June 2020. And the pensions sector paid benefits worth $483 million between January and June 2020.

“This means policy holders are revaluing their assets in line with inflation. We have also seen an increase in uptake in US-dollar policies.

“We did issue a circular where we allowed certain policies to be written in hard currency and we also continue receiving applications and we have been giving some exclusions to allow certain policies to be written in US-dollars,” she said.

Dr Muradzikwa clarified that the issuance of US-dollar policies was mostly with respect to situations where a policy holder demonstrates that they have access to free funds or where they have demonstrated that the cover that is being sought is best offered in US-dollar.

“We are at least pleased to see that at least the premium growth has been tracking inflation. But that notwithstanding, we have also been calling for all sorts of data calls so that we have a view of how the industry is performing and how we can issue guidelines,” she said.

“One of the focus areas for the commission has been on expense structures and dividend declaration to conserve capital and just urging regulated entities to make sure they reign in on expenses…we are very much in touch with the industry and exchanging ideas around this to ensure the industry is vibrant and survives post Covid-19 pandemic.”