eBusiness Weekly
Kudzanai Sharara
Insurance and Pension management companies are optimistic that they will not fall into the same situation that saw pensioners and life insurance policyholders lose their lifetime savings when the local currency succumbed to hyperinflation in 2008.
Pensioners and policy holders incurred substantial losses when the country dollarised and insurance and pension management companies have been partly blamed for the huge losses.
According to the commission of inquiry set up to probe the process used to convert pensions and insurance benefits following dollarisation of the economy in 2009, insurance and pension service providers lost billions of dollars through bad investment decisions among others.
“An investigation into the asset build-up revealed that the industry lost billions of dollars in excessive expenditure and bad investment decisions,” reads the report by the commission.
Service providers, however, attributed the losses to a “sustained period of hyperinflation,” a situation that they believe will not be repeated.
First Mutual Holdings Limited Douglas Hoto recently told Business Weekly that industry players will be able to preserve and grow value for policyholders and pensioners.
“At the moment yes, but it’s not easy, but now we are investing more in real assets, properties and shares.
He said in 2008, there was a sustained period of hyperinflation, “we hope that won’t be repeated.”
Hoto said the current loss of value (differences between RTGS and real US$) was, however a problem, which he hoped will not go on for long.
“If we have a sustainable period of low confidence (in currencies) then it will be difficult to create and sustain value.
Hoto hoped President Emmerson Mnangagwa’s government will be able to deal with the issue of confidence which should also be strengthened by holding credible elections.
Analysts, however, believe the operating environment does not offer much in terms of investment options with, for example, those who have put funds into investment properties witnessing downward reviews on rentals and increased voids.
The property market has also witnessed a decline in property values with the third quarter Insurance and Pensions Commission (IPEC) report for the Life Assurance Sector revealing that there was a decrease of 11 percent in the value of properties to $499 million in 2017 from $560 million in 2016. This, analysts say, might affect returns.
The sector’s money market investments remained static at $190 million for the quarter under review, but given the prevailing inflation pressures there is an element on value erosion. This has also been compounded by the loss in value of RTGS balances against real US dollars.
Another area of concern could be the equities market which has been coming off since the beginning of the year. While the market capitalization reached record levels in November 2017, it has been coming off since then and is off an average 12 percent year to date.
Another pension fund manager who requested anonymity said they have since moved away from traditional ways of investing (equities market, money market and bond markets) and are now requesting equity in every investment they make.
“We are now telling those looking for funds that we want to co-own the projects we are involved in. So we are pushing for equity so that we are not caught up if a similar situation as in 2008 is to be repeated,” he said.
“In 2008, most of our investments were in money market instruments and those were wiped out.”
The regulator , IPEC, which was partly blamed for the debacle says it is working on strengthening the supervisory framework by enhancing the powers of IPEC to effectively and efficiently supervise the sector in respect of good corporate governance, soundness, and consumer protection.
Responding to Business Weekly, IPEC public relations officer Lloyd Gumbo said the regulator is working on reviewing the legal framework in an effort to address all the legal deficiencies observed by IPEC and also contained in the Report of the Commission of Inquiry.
This, he said, will be done through amendments to the Insurance and Pensions Commission Act [Chapter 24:21], the Insurance Act [Chapter 24:07], the Pension and Provident Funds Act [Chapter 24:09], and respective regulations.
“The Bills, set to amend the insurance and pension legislation are at various stages towards enactment,” said Gumbo.
He said IPEC stands ready to implement reforms as guided by Government through the Ministry of Finance and Economic Development.
“As IPEC, we stand guided by Government, through the Ministry of Finance and Economic Development with regards to the implementation of the post-inquiry recommendations.
“We are convinced that the reforms recommended by the commission of Inquiry will help to prevent future loss of value as witnessed in 2008,” said Gumbo.
He said IPEC is also working on improving disclosure by regulated entities to ensure adequate protection of policyholders and pension scheme members.
