How insurance, pensions money stimulate economy

13 Sep, 2019 - 00:09 0 Views

eBusiness Weekly

Tawanda Musarurwa

The insurance and pensions industry is fundamentally underpinned by the principle of investment, as players in the sector are naturally inclined to ensure that accumulated monies give out the best returns at the de-accumulation or pay-out stage.

Insofar as is the case, there is perhaps no other single economic sector that has high efficacy levels in investment and as such contributed more significantly to the economy.

Experts say insurance and pension savings can, on the one hand, lead to deeper and more efficient capital markets and secondly contribute to economic infrastructure development.

With regards to the pension sector, the Insurance and Pensions Commission (IPEC)’s second quarter Pension Industry Report to June 30, 2019 shows that the industry’s asset base increased by 30,86 percent from $5,38 billion as at March 31, 2019 to $7,04 billion as at June 30, 2019 on the back of “an increase in the values of investment property and listed equities”.

Investment property increased from $1,27 billion as at March 31, 2019 to $2,05 billion as at June 30, 2019, while listed equities increased from $2,40 billion as at March 31, 2019 to $3,03 billion as at June 30, 2019.

“The increase in investment property was mainly due to revaluations of property values from US$ values to ZWL$ after the February 2019 Monetary Policy Statement, while equities values increased as a result of a ‘bull run’ on the Zimbabwe Stock Exchange during the quarter under review,” said IPEC.

At the same time IPEC’s Life Assurance Industry report for the same period showed that the sector’s asset base stood at $6,04 billion as compared to $3,49 billion reported as at March 31, 2019, representing a growth of 73,31 percent.

“Growth in asset base was mainly driven by an increase of 63,67 percent in the value of equities from $1,84 billion as at March 31, 2019 to $3,01 billion as at June 30, 2019 and a growth of 112 percent in fixed property from $757,9 million as at March 31, 2019 to $1,61 billion as at June 30, 2019,” noted IPEC.

“Growth in equity values was driven by the depreciation in the value of the RTGS dollar from RTGS/US$2,5 when the parity between the US$ and the RTGS dollar was removed to RTGS/US$9,4 as at July 31,   2019.

“On the other hand growth in fixed properties is attributable to the revaluation of properties that were previously denominated in US$ to reflect their new values in RTGS dollar.”

The asset base for life assurers continues to be concentrated in equities and fixed properties, which accounted for 76,5 percent of total assets.

Pension and insurance savings directly increase funds in capital markets available for private investment.

But the benefits of such investments also accrue to the funds themselves as institutional investors.

For instance, in the case of the pensions industry, its asset base as at June 30, 2019 translated to an average capital accumulation of $8,821 per member.

Official figures show that equities investments and investment property accounted for 72,88 percent of total pensions industry assets as at June 30, 2019. And the two asset classes totalled $5,13 billion and are viewed to be long-term hedges against                                                                                                inflation.

Beyond the complicated figures, it is clear that insurance and pensions sector’s investments are key for general economic and infrastructure development.

A case in point is Old Mutual Life Assurance Zimbabwe Limited’s current plans to construct a multi-million dollar industrial park and private hospital on a combined 27-hectare land in the Mhondoro-Ngezi rural district council.

Old Mutual group has lately been on a property development investment offensive as it recently unveiled a 12 000 square metres Small to Medium Enterprise complex in Harare’s central business district valued at $21,4 million.

This is in addition to the Old Mutual pension fund’s standing investments in a hydropower station in Chipinge as well as medical facilities in Lupane and Ngezi.

And the National Social Security Authority (NSSA) and First Mutual Holdings are currently heavily investing in both residential and commercial properties.

Numerous other examples abound, but the significance of the insurance and pensions sector is highlighted by the fact that about 80 percent of commercial buildings in every city in Zimbabwe are owned by the sector.

Other common investment destinations for pensions and insurance funds are the Zimbabwe Stock Exchange (ZSE), the banking sector as money market investments, Government and quasi-Government bonds, as well as private equity.

Through its significant contribution to property and infrastructure development, and provision of capital into productive sectors, the local insurance and pensions industry is helping to facilitate trade and commerce activities that results in Zimbabwe’s economic growth and development.

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