Insurers, pension funds pay out $1,26bn

Tawanda Musarurwa Senior Business Reporter

Zimbabwe’s insurance companies and pension funds were largely able to skate around the effects of currency adjustments last year to meet contractual obligations of at least $1,26 billion.

Official figures from the sector regulator — the Insurance and Pensions Commission (IPEC) — show that insurance firms paid out claims to the tune of $850 million, while pension benefits amounted to $416 million in 2019.

Total membership to pension schemes closed 2019 at 800 000.

Players in the local insurance industry (short-term direct insurers, funeral assurers, life direct assurers and micro-insurers) totalled 30 over the same period.

Significant fiscal and currency shifts from 2016 through 2019 ushered in conversion challenges, that were particularly felt by the insurance and pensions industry.

But unlike the hyper-inflationary period circa 2008 when the regulator failed to provide guidance, this time around IPEC issued several guidance papers to the insurance and pensions industry on how to deal with some of the conversion challenges.

One of the major criticisms of the Justice Smith Commission of Inquiry Report, was that the regulator failed 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.

But last year, IPEC issued 10 regulatory circulars to guide the industry on supervisory expectations; and developed supervisory frameworks including: The Troubled Institutions Resolution Framework; the Disclosure Guidelines for both Insurance and Pensions; and the Guideline on Adjusting Insurance and Pension Assets and Liabilities in line with Currency Reforms.

These perhaps contributed in protecting — to some extent — the insured and pensioners’ hard-earned savings. IPEC Commissioner Dr Grace Muradzikwa, said the level at which insurers and pension funds met their contractual obligations in 2019 point to a functional sector.

“For insurance claims, the industry paid close to a billion, $850 million to be precise, and in addition, pension pay-outs amounted to $416 million,” she said.

All things being equal, an insurer or pension fund should ensure that monies that are put in at the accumulation phase correspond or are better off at the de-accumulation stage.

However, in so far as these entities operate within the prevailing economic environment, outputs have not been up to par. In respect of the local pensions sector, for instance, the depreciation of the Zimbabwe dollar against the United States dollar has affected the imputation of assets held through defined benefit retirement plans.

A defined benefit pension plan is a type of pension plan in which an employer promises a specified pension payment, lump-sum or combination thereof on retirement that is predetermined by a formula based on the employee’s earnings history, tenure of service and age.

To this extent, an inflationary environment such as the one Zimbabwe is presently undergoing affects the purchasing power of the pension.

On the other hand, defined contribution (DC) plans — which are a type of retirement plan in which the employer, employee or both make contributions on a regular basis, and future benefits fluctuate on the basis of investment earnings – have also not been spared by the weakening currency because a significant number of pension funds are heavily invested on the capital markets, which have been under-performing in line with the depressed economic performance.