HIGH costs associated with actuarial valuations and the processing of financial statements have crippled the pension and insurance industry which is struggling to comply with stipulated guidelines in relation to adjusting insurance and pension values in line with 2019 currency reforms.
The Reserve Bank of Zimbabwe separated nostro and Real-Time Gross Settlement (RTGS) accounts in 2018 before banning the multi-currency regime in 2019, followed by declaration of the Zimbabwean dollar as the sole legal tender.
Following the reforms, all financial accounts expressed in United States dollars as of 22 February 2019 (except FCA nostro accounts) were then expressed in the Zimbabwean dollar.
The reforms triggered a rise in the inflation rate and instability in the exchange rate that has yielded extraordinary gains for most insurance companies and pension funds.
In response, the Insurance and Pensions Commission (Ipec) in 2019 issued a framework of guidelines on the determination and treatment of the revaluation gains to provide key principles to be adhered to by all insurance companies and pension funds when determining and allocating revaluation gains that arose as a result of the currency reforms.
The high costs associated with implementing financial and actuarial valuations has seen Ipec suspending the second measurement in line with guidance which was set for 30 June 2020, replacing it with regular bonus declarations.
Before then, insurance and pension firms had also failed satisfy the first measurements deadline which was set for 31 December 2019.
Ipec commissioner Grace Muradzikwa, in a paper addressed to the industry, said in respect of the first compliance date, the commission observed a lack of compliance with the statutory submission deadlines, incomplete submissions by some of the players and inadequate application of all the provisions of the guidance paper.
“Please note that failure to make submissions as required in terms of Section 28 of the guidance adjusting insurance and pensions values in response to currency reforms attracts a level 4 penalty of $1 200 for each day the fund /or insurer is in default in terms of Section 5 of the insurance and pensions regulations. The commission has also been expecting compliance regards submissions for the second measurements date of 30th June 2020 interms of the guidance paper,” she said
“The commission has however received requests from the industry to suspend the 30th of June 2020 submissions on account of high costs of financial statements half yearly as well as at the end of the year as is required in terms of section 9.3.1 of the guidance paper, high costs of carrying out actuarial valuations as at 30 June as well as at the end of the year and difficulty in interpretation of the certain sections of the guidance paper.”
Muradzikwa added that the commission’s analysis revealed high revaluation gains of 2019 which were realised in the first six months of the year 2020 and thereafter.
To minimise inter-generational transfer of wealth in a hyperinflationary environment she compelled the industry to ensure that the returns be quickly distributed to policyholders.
“After careful evaluation of the 2019 submissions by the industry and consideration of the industry’s various representations regarding suspension of the June 2020 submissions required in terms of the guidance paper, the commission in line with section 3 of SI (Statutory Instrument) 69 of 2020 has therefore decided to replace 30 June submissions interim valuations only with more regular declarations, preferably monthly, as a convenient way of quickly passing returns to members or policyholders,” Muradzikwa said.
The industry has been the most affected by currency reform inconsistencies and hyperinflation from over a decade ago with the Justice Smith commission of inquiry’s recommendations yet to be implemented.