Zimbabwe’s insurance and pensions sector players could be exposing themselves to greater vulnerabilities by failing to comply with set regulations guiding the sector.
This is especially so insofar as their operating environment has been impacted — largely negatively — by inflationary pressures, and more broadly by Covid-19.
Local players in this sector already have experience of how a challenging operating environment can affect their business.
Following the value erosion that took place circa 2008 due to hyperinflation, Government assigned the Justice Smith Commission of Inquiry to look into the matter.
One of the key highlights of the report was that the insurance and pension industry was not effectively regulated over the period from 1996 to 2014.
The sector regulator — the Insurance and Pensions Commission (IPEC) — was charged with failing to intervene in order to correct market failures and guide the industry and thus resulted in failure by the industry to institute financially sound systems and procedures.
It’s an area that IPEC has moved to address in recent years, especially after the re-emergence of inflationary pressures in the last couple of years.
From 2019 to date, the insurance and pensions regulator issued 10 circulars covering a number of regulatory issues to the market, as well as developing six supervisory frameworks, manuals and policies.
But despite IPEC’s efforts, there is still a high level of non-compliance to standard statutory prerequisites such as minimum capital requirements.
Various sector reports for the second quarter to June 30, 2020 show generally poor compliance levels within the sector.
“For the six months ended June 30, 2020, nine out of 12 life assurance companies and one of the four life reassurance companies reported capital positions which were in compliance with the prescribed minimum capital requirements of $75 million and $112.5 million, respectively,” highlighted IPEC in its latest life assurance sector report.
On the other hand, the pensions sector is doing its role to contribute to poor compliance.
“Notwithstanding the increase in
the nominal value of prescribed assets from $0.51 billion as at 30 June 2019 to $4.72 billion as at 30 June 2020, compliance was still low at 7.11 percent against the regulatory minimum of 20 percent,” noted IPEC in the pensions report.
But the sector that is dancing with the Grim Reaper is the funeral assurance sector as players in the sector failed to secure reassurance arrangements, especially in view of declining profits, increasing costs and poor compliance levels.
“All funeral assurers did not have any reassurance arrangement (s) in place for the six months ended 30 June 2020,” said IPEC.
In addition to that, to latest numbers showed that just one out of the seven funeral assurers was compliant with the regulatory minimum capital requirement of $62,5 million.
On a positive note, however, non-life insurers were largely compliant with the sector’s minimum capital requirements.
“17 out of 18short-term insurers were compliant with the minimum capital requirement of $37.5 million as at 30 June 2020,” said the regulator in the non-life insurance sector report.
“The reported capital positions were computed without accounting for non-admissible assets as stipulated in Statutory Instrument 95 of 2017.
“All short-term reinsurers reported capital positions which were above the minimum capital requirement of $75 million as at 30 June 2020.”
Observers say improved compliance has the effects of buttressing the sector against systemic risks.