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Assets requirement headache for insurers

By Melody Chikono

THE life assurance sector is battling to comply with the minimum prescribed asset requirement with life assurance companies and reassurance companies failing to meet their regulatory requirements in the third quarter of the year 2021.

The Insurance and Pensions Commission (IPEC) announced mid last year the commencement of the development of a new prescribed assets framework that will ensure that institutional investors’ funds are hedged against inflationary pressures.

Prescribed assets are bonds or securities issued by the government, Local Government, quasi-government organisations or any other bond that may be accorded the prescribed asset status. During the period under review all life assurance sector players reported prescribed asset ratios that were below the minimum required threshold of 15% while only one out of four life re-assurers was compliant with the minimum prescribed asset threshold.

In its Q3 life report Ipec said prescribed assets investments were an important resource mobilisation tool for funding infrastructure development and other projects of national interests to foster socio-economic development.

The regulator called on industry players to continuously carry out compliance self-assessments, developing compliance roadmaps in cases of noncompliance and come up with viable projects for possible conferment of prescribed asset status by the Minister of Finance and Economic Development.

“Non-compliant life re-assurers are encouraged to develop prescribed asset compliance plans in line with SI 206 of 2019 and come up with viable projects for the possible conferment of prescribed asset status by the Minister of Finance and Economic Development .

Prescribed asset investments are an important resource mobilisation tool for funding long term government projects of national interests to foster socio-economic development towards a middle-income economy and the attainment of Vision 2030,” the commission said.

Statutory Instrument 206 of 2019 requires all life re-assurers to have a minimum of 15% of their assets invested in prescribed asset securities.

For life assurers, total investments in prescribed assets by the life assurance sector amounted to ZW$1.83 billion translating to a compliance level of 2.84% while for the nine months to 30 September 2021, the total investments in prescribed assets by the life re-assurance sector amounted to ZW$45.5 million translating to an average compliance level of 3.90%.

All things being equal, prescribed assets, such as stocks, bonds and other types of Government paper should be generating significant returns.

However, inflationary pressures have affected the level of returns investors can generate from such assets as prescribed assets are mostly fixed interest assets. Over the years it has become difficult to reconcile a fixed interest instrument amid high inflation.

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