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FML faces investigation over asset separation law defiance

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THE Insurance and Pensions Commission (Ipec), a statutory body, has launched a forensic investigation into the affairs of First Mutual Life Assurance (FML), a wholly-owned subsidiary of First Mutual Holdings Limited (FMHL) which provides primary individual and group life assurance cover, over its failure to separate assets between shareholders and policyholders.

MOSES MATENGA

FML, the second-largest life assurance company in Zimbabwe by market share that also provides retirement, medical insurance, micro-insurance and other long-term financial security products, has also effectively defied the law on separation of insurance and pension businesses due to internal squabbles over the issue, which has led to some executives being removed. 

 Zimbabwe’s leading financial services conglomerate, CBZ Holdings, is in the process of taking over FMHL to build a business behemoth in the local and regional markets.

 In a letter dated 8 February addressed to FML board chairperson Samuel Rushwaya, copied to FMHL chief executive Douglas Hoto, FML boss Reuben Java and FML acting principal officer Williefaston Chibaya, Ipec commissioner for insurance, pension and provident funds Grace Muradzikwa says a forensic investigation into the company’s issues has begun after it failed to comply with the asset separation policy and law.

 “Reference is made to our letter of 31 December 2021, wherein the commission expressed concern over the failure by FML to adhere to the agreed timelines and the quality of submission thereof,” the letter says.

“Notwithstanding your late submission, and after assessing your submissions of 24 and 29 December 2021 respectively, regrettably, they were still not adequate to enable the completion of the asset separation exercise of the entity.

“To this end, the commission is proceeding with instituting a forensic investigation into FML as communicated in our letter of 18 November 2021 in line with Section 67 of the Insurance Act (Chapter 24:07). The commission has therefore commenced tender processes to obtain a forensic investigator. 

“The full costs of the forensic investigation shall be recovered from FML in terms of Section 67 (7) of the Insurance Act (Chapter 24:07). The commission will keep your organisation updated on the processes of the forensic investigation. Be guided accordingly.”

Section 29 of the Insurance Act [Chapter 24:07] and Section 16 of the Pension and Provident Funds Act [Chapter 24:09] require separation of assets between shareholders and policyholders; and insurance and pension businesses.

 The verification of whether insurers are complying with statutory provisions relating to this is being done by Ipec retrospective to 2009.

Ipec is established in terms of the Insurance and Pensions Commission Act [Chapter 24:21] to regulate the insurance and pensions industry with the objective of protecting the interests of policyholders and pension scheme members. 

The commission reports to the ministry of Finance. It began operations in 2005 after it was weaned off the ministry. Benefits expected from the ongoing verification exercise include:

 • Identifying assets that may have been misappropriated from policyholders to shareholders or vice versa;

 • Quantifying the assets that may have been misallocated and apportioning them to their rightful owners; and

• Enhancing compliance with the legal requirements for asset separation as a way of improving good governance in the insurance and pension sector.

 The project, which is being done at industry level, is now at the tail end.  Conclusion of this project will inform additional regulatory and governance reforms as well as controls to ensure transparency, fairness and equity between policyholders and shareholders. 

 The pensions industry has remained resilient in the face of Covid19-induced challenges and high inflation in the past few years. 

 According to Ipec’s 2020 annual report, key positives were noted in investment earnings driven by fair value gains on real assets which constitute the huge chunk of pension funds’ balance sheets. 

The total asset base of the industry increased in nominal terms by 273.06% from ZW$29.55 billion as at 31 December 2019 to ZW$110.24 billion as at 31 December 2020.

This was against an annual inflation rate of 348.6% for December 2020, implying a decline in the industry’s assets in real terms. Annual inflation for January was 60.61%, down from a peak of 761% in 2020.

While the rate of asset growth was below inflation, Ipec managed to ensure that the fund members enjoyed the nominal growth in asset value through enforcing the requirements of the Guideline for the Insurance and Pensions Industry on Adjusting Insurance and Pension Values in Response to Currency Reforms. 

 This saw pensioner values being adjusted upwards to reflect the revaluation gains realised by the funds. 

 The insurance industry wrote gross premium amounting to ZW$18.48 billion for the year ended 31 December 2020, representing a nominal increase of 586% from ZW$2.69 billion written in 2019, resulting in real growth of 52.9%.

 The soundness of the industry was enhanced as compliance with minimum capital improved from 66% in January 2020 to an average compliance of 87% by December 2020. Funeral assurance companies had the lowest average compliance ratio at 38%. 

Total assets for the insurance industry increased by 191% from ZW$17.19 billion in 2019 to ZW$50.04 billion as at 31 December 2020, a negative real return of -35.1%. Figures for 2021 were not immediately available.

 Efforts to get comments from Hoto and Java failed as they did not answer repeated calls to them.

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