ZIMBABWE’S funeral assurance companies are blaming the wobbling economy for non-compliance with prescribed asset requirements, after the sector’s regulator raised the red flag over the development.
Zimbabwe is battling rising inflation, a weakening domestic currency, high levels of unemployment and a huge debt overhang, among other problems.
In the report for the first quarter ended 31 March 2023, the Insurance and Pensions Commission (Ipec) said prescribed asset compliance levels were daunting as none of the eight players in the sector complied with the required prescribed asset ratio.
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. This helps in preserving the value of the investment made by the funeral assurance companies, to ensure that they are able to pay claims on time.
“All funeral assurers were non-compliant with the minimum prescribed asset requirements as at 31 March 2023 with an average prescribed asset ratio of 0.21% against the required ratio of 10%, as stipulated by Statutory Instrument 206 of 2019,” reads the Ipec report.
The total amount invested in prescribed assets was only ZW$17.23 million against the required minimum amount of ZW$835.74 million to comply with the minimum Prescribed Asset threshold of 10%.
The Zimbabwe Association of Funeral Assurance told The NewsHawks that the inflationary environment limited the desirable assets that the players wanted to invest in to comply with the Prescribed Asset requirement.
“The current hyperinflationary environment requires that whatever asset we invest in should give a return above inflation for value preservation of policyholder funds and such assets are limited on the market,” said the president of the association, Arthur Mukasi.
Inflation has been on an upward trend since April this year, prompting the government to take several measures to tame the runaway prices and restore macro-economic stability.
Zimbabwe’s annual inflation rose from 75.2% in April, to 86.5% in May and jumped to 175.8% in June this year.
Meanwhile, total technical liabilities increased by 3.78% in nominal terms from ZW$2.57 billion as at 31 December 2022 to ZW$2.67 billion as at 31 March 2023, with future policyholders’ benefits being the major component constituting 99.56%.
Ipec said it expected the compliance ratios to improve with the introduction of gold coins, which had been accorded prescribed asset status.
However, Mukasi said there was a shortage of gold coins in the market, which also posed a challenge barring the players from complying with prescribed asset ratio requirements.
In the last quarter of 2022, the government issued prescribed assets status to projects and financial instruments worth approximately US$550 million.
However, the uptake by funeral assurers continued to decline.
Despite all the challenges, the association urged its members to comply with prescribed assets requirements, while it engages the regulator on the challenges impeding compliance.
“We continue to engage the regulator on such challenges as we endeavour to comply with the requirement. In the medium to long term, the funeral industry intends to come up with its own infrastructure projects with prescribed asset status that speak to the industry and aid in value preservation,” said Mukasi.
The insurance regulator also recommended the development of sector-specific projects that speak to the sector’s needs, for possible conferment of prescribed asset status as this would enhance compliance.