The Insurance and Pension Commission wants insurance companies and pension funds with over $1 billion invested in fixed properties, to invest on secondary markets to ensure tradability of fixed income securities for liquidity that determines their ability to meet obligations to pay out claims.
This is because investments they make, in particular, pension funds, are often faced with situations where their fixed income security investments are not tradable and can only be held to maturity before the proceeds can be utilised. This implies that before maturity of the fixed income securities, the pension funds are not able to liquidate the same fixed income securities to honour their obligations, which may be an emergence requiring immediate or swift response.
“In a bid to improve the ability of pensions to meet their obligations, it is critical that there be mechanisms to create a secondary market to enable tradability of fixed income securities,” IPEC Commissioner Tendai Karonga said.
The insurance and pension funds regulator said the occupancy rate for buildings around the central business district was very low at well below 50 percent. This situation is compounded by the fact that selling commercial properties in the current environment is very difficult given liquidity constraints in the market.
In a bid to enable the insurance companies and pension funds to unlock small parcels of liquidity from their investments in commercial properties, IPEC wants the capital market players to develop Real Estate Investment Trusts.
“Real Estate Investment Trusts result in indirect ownership of properties through shares whose value is based on the value of the underlying property,” Karonga said.
In total, Zimbabwe’s insurance and pensions industry had total assets of $5,4 billion as at 31 March 2017, with the bulk of the value invested in the capital markets.
“Almost 70 percent of Zimbabwe Stock Exchange stocks is funded by insurance companies and pension funds as institutional investors. These are probably the strongest local investors. I hope they are well represented here as investors,” said Karonga.
Given the value they hold, IPEC says there are reforms that are underway to enhance the stability of the insurance and pensions industry. These reforms will result in improved protection of policyholder and fund member interests.
The changes include introduction of Statutory Instrument 80 of 2017, which increases the regulator’s powers to control and monitor the activities of pensions funds particularly trustees.
The insurance and pensions regulator also recently introduced risk management and corporate governance guidelines
This comes against the background where the insurance industry has, for some time, been bedeviled by corporate governance challenges, mainly owing to domineering individuals and the absence or weakness of oversight functions such as Risk Management, Internal Audit and Compliance Functions. To improve the industry, the insurance and pensions regulator is in the process of reviewing its primary legislations namely the Insurance Act, Pension and Provident Funds Act and Insurance and Pensions Commission Act.
These reviews are mainly meant to align the industry legislation with international best practices, in particular the core principles promulgated by the International Association of Insurance Supervisors (IAIS) as well as the International Organisation of Pension Supervisors (IOPS), IPEC said recently.