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 Tawanda Musarurwa–Senior Business Reporter 

The Insurance and Pensions Commission says it is developing a new prescribed assets framework that will ensure that institutional investors’ monies are hedged against inflationary pressures. 

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

Although the country’s insurers and pension funds are required in terms of the law to invest a certain percent of their total investment funds in prescribed assets, compliance levels remain significantly low. 

“The Commission has constituted a Prescribed Asset Investments Working Group to come up with a prescribed asset framework that will take into consideration industry needs to ensure preservation of value to both the investors and policyholder funds,” said IPEC in Q1, 2021 sector reports. 

“The Commission has also called upon the industry to come up with projects that can be accorded prescribed asset status as a way of improving their compliance.” 

With regards to specific sub-sectors, the regulator reported that all funeral assurers were non-compliant with the minimum prescribed asset ratio of 10 percent as stipulated by Statutory Instrument 206 of 2019. 

“Prescribed asset investments were insignificant as they accounted for only 0,11 percent of the total asset portfolio. The total amount invested in prescribed assets investments was $1,82 million against a minimum amount of $172,17 million for the sector to comply with the 10 percent minimum prescribed asset threshold,” said IPEC. 

Of the eight short-term reinsurers, three were compliant with the minimum prescribed asset ratio of 10 percent as at March 31, 2021.

Nonetheless, the statistics showed that short-term insurers’ investments in prescribed assets by short-term reinsurers increased by 13,89 percent from $1,08 billion at the close of 2020 $1,23 billion as at the end of the first quarter. 

The pensions funds sector’s compliance levels to prescribed assets remains very low despite an increase in prescribed assets holdings over the period, with the latest numbers show that the value of prescribed assets increased in nominal terms by 135,81 percent to $5,40 billion from $2,29 billion in the prior comparable period. 

Pensions funds’ compliance stood at 3,05 percent against the regulatory minimum of 20 percent for the period under review. 

For the life assurance industry, IPEC reported an average prescribed assets compliance ratio for life assurers and life reassurers of 0,31 percent and 9,06 percent respectively against the required minimum prescribed asset ratio of 15 percent.

During the first quarter, the regulator said all direct life assurance companies and three out of four life reassurance companies were not compliant with the minimum prescribed asset ratio of 15 percent.  

All things being equal, prescribed assets, such as stocks, bonds and other types of Government paper should be generating significant returns. 

However, inflationary pressures have affected the level of returns investors can generate from such assets. 

Because prescribed assets are mostly fixed interest assets, for the earlier part of 2020, it was difficult to reconcile a fixed interest instrument and very high inflation which peaked at 837 percent last July. 

As a result, the majority of pension funds and insurance firms are still lagging in terms of compliance with the prescribed assets regulations.