AN audit by statutory body Insurance and Pensions Commission (Ipec) into life assurance company First Mutual Life Assurance’s (FML) operations has revealed that the it has been investing millions in policyholder funds without written prior informed consent, leading to huge losses.
NATHAN GUMA
In 2022, Ipec, a statutory body, launched a forensic investigation into the 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.
The audit by actuarial experts BDO Chartered Accountant Zimbabwe and Rimca Solutions, completed on February 17, 2023, has shown that the company has been investing the funds without written consent, thereby prejudicing policyholders.
For instance, while policyholders also invested a principal amount with a value of US$2 245 970 into the First Mutual Funeral Services Bond, only US$36 762 was realised, which was computed as loss on exchange rate from 2018-2022.
In response, FML denied prejudicing policyholders saying the perceived loss was a result of changes in macro-economic regulations.
“The FMS bond was issued in October 2018. In terms of the Statutory Instrument 33 of 2019 issued on 22 February 2019, paragraph 4d states that “for accounting and other purposes, all assets and liabilities that were immediately before the effective date valued and expressed in United Stetes dollars (other than assets and liabilities referred to in Section 44C (2) of the principal Act shall on and after the effective date be deemed to be values in RTGS dollars at one-to-one to the United States dollar,” FML said.
“The business applied the requirements of the statutory Instrument (SI 33 of 2019) and hence references to values in United States Dollars should be interpreted in mean Zimdollar.
“The change in currency, which happened through SI 33 of 2019 was a function of macro-economic regulations. Any perceived loss arising from this statutory decision cannot be ascribed to and is outside the control of the shareholder. FML respectfully disagrees to any prejudice to policyholders.”
Findings by BDO have also shown that FML has been investing policyholder funds without written consent of the policyholders, who are represented by the company’s board.
For instance, in 2013, an employee mortgage scheme was structured by the FMHL to work in partnership with selected financial institutions such as CABS, FBC, NMB, with US$2 860 885,04 and ZW$6 734 832 placed with financial institutions as surety to mortgages between 2013 to 2021 alone.
This is despite the 2015 FML main policyholders Funds Investment Mandate, stating that the investment manager shall undertake not to pledge, mortgage or hypothecate any of assets under management without the investors prior written consent.
“The investor referred to here is the FML board,” reads the audit.
“While the investment mandate requires that the investment in long terms loans and unlisted securities require the written constent of the investor, we were not availed evidence of FML Board approval for the investment as the investpor on behalf of policyholders.”
For every dollar lent out by the banks as mortgage financing, there would be a corresponding dollar invested in a money market deal to FML, according to the audit report.
To correspond to the tenure of the mortgages which ranged from 15-20 years, the money market deals would be rolled over each time on maturity.
In 2019, another employee loan scheme was structured where First Mutual Microfinance would give loans with a tenure ranging up to 82 months.
The arrangement was similar to the banks where FML was supposed to make equivalent placement. The FML 2010 summarised investment mandate states that ‘investments in long-term loans and unlisted securities shall require the written consent of the investor’
