HomeBusiness DigestInsurance firms lobby for lower asset ratios

Insurance firms lobby for lower asset ratios

Shakeman Mugari

MAJOR insurance companies say the prescribed asset ratio has impacted negatively on their earnings.

erif”>They say they will soon make representations to government to reduce the ratio, as this would enhance investment income in light of hyperinflation.

Prescribed asset ratio is the proportion that long and short-term insurance companies are required by law to invest in government guaranteed bonds and Treasury Bills whose interest rates are generally unattractive.

Government bonds and Treasury Bills have returns of between 30% and 45%, which is far lower than the inflation rate, hovering at 269,2%.

Chris Gomwe the spokesperson for the Insurance Council of Zimbabwe said the prescribed asset ratio reduced investment income receivable by insurance companies. Investment incomes constitute the bulk of insurance company’s earnings.

Gomwe said: “Investments such as Treasury Bills and long-term government bonds generally attract lower interest rates when compared to NCDs, BAs and Call Accounts.”

Gomwe is managing director of the Southern Africa Reinsurance Company (Sare). Companies make most of their earnings from investing in the money and stock markets.

It is also a worldwide trend for insurance companies to make a loss on technical issues and then get salvaged by investment income to post a positive result.

Insurance companies have begun lobbying for a reduction in prescribed asset ratios to enable them to invest more capital in other markets that have higher interest rates and more liquidity.

The most affected sector is the long-term whose ratio stands at 45%.

The short-term has not been spared.

“Short-term is also seriously affected by the long-term government bonds because the operations require funds to be available at short notice,” Gomwe said.

The companies have also complained that the regulation ties their money too long before the bonds and other government investments mature.

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