eBusiness Weekly
Business Writer
Zimbabwe’s insurance and pension industry lost billions of dollars due to excessive recurrent expenditure and bad investment decisions between 2009 and 2014, to the detriment of asset growth in support of pensioners and policy holder benefits.
The report of the Commission of Inquiry which looked into the conversion on insurance and pension values from Zimbabwe to the United States dollars revealed that the industry also lost asset value through non remittance of contributions.
The commission—chaired by Retired Justice Smith blamed “cannibalistic” expenses of nearly $3 billion in five years to 2014 as the biggest cause for loss of values post Zim-dollar era.
Government commissioned the investigation in 2015 into how pensions and insurance benefits were paid out following a big outcry from pensioners and policy holders.
Pension fund values were badly eroded in values due to devastating hyperinflation, which soared to a record 231 percent at the last official count in June 2008. The International Monetary Fund estimates inflation reached 500 billion percent.
The Government wiped out the hyperinflation figures in 2009 when it abandoned the use of the Zimbabwe dollar for a basket of foreign currencies, but mostly dominated by the US dollar, leading to what is now generally called dollarisation.
The commission of inquiry said pensioners and policy holders suffered a “huge” loss of value and recommended compensation. It also noted values were not only lost during the conversion period, but during the investigation period between 1996 and 2014.
In its report, the commission said high levels of inflation, currency debasing, dollarisation conversion process and de-monetisation were the main reasons of the loss of value.
“An investigation into the asset build up revealed that the insurers lost billions of dollars in excessive recurrent expenditure and bad investment erosions,” said the report.
“Just for the period 2009 to 2014, the industry committed over $2,9 billion in administration and other expenses. Non remittances of contribution for the post dollarisation period amounted to at least $328 million before interest. Such non remittances is estimated to run into billions of dollars for the entire period of investigation.”
The contribution arrears, negative real return on investment, and huge administrative expenses and declining macroeconomic fundamentals adversely impacted on the industry capacity to mobilise saving for national development, the report said.
In the post dollarisation, total pension contribution ad insurance premiums rose to $1,1 billion in 2015 from $375 million in 2009, averaging $866 million over the period.
Total pension contributions and insurance premiums of the insurance and pension industry as a percentage of the GDP averaged 4,8 percent during the period 1996-2000, 7,6 percent between 2001 and 2007 and 10,3 percent from 2009 and 2015.
The commission recommended that pension and insurance legislation be amended to empower the regulator to prescribe acceptable expenses and respective ratios. This would address the industry wide “mischief on abnormally” expenses ratios as high as 100 percent of pension contributions or insurance premiums.
In addition to the requirement for minimum expense charges, the regulator should also have due regard to the relationships between the premiums or contributions paid by the policy and the benefits expected.
The regulator should be empowered to declare a product financially unsound if the relationship between premiums and benefits is such to cause loss of confidence in the industry.
