THE insurance regulator should oversee the expansion of prescribed asset status to other performing classes as available paper does not consummate with high inflation levels prevailing in the economy, Insurance Council of Zimbabwe has said.
Prescribed assets are bonds or securities issued by the government, local authorities, quasi-government organisations or any other bond that may be accorded the prescribed asset status.
Last year government directed that short term insurers have 5% of their portfolio in prescribed assets.Pension funds’ prescribed asset ratio was reviewed to 10% while life and funeral assurers was pegged at 7,5%.
But the industry says available options are not performing given the prevailing hyperinflationary environment.ICZ board chairperson Panganai Sanangurai on Wednesday told businessdigest that short term insurers wanted a broad re-consideration of the requirements of investing in prescribed assets in the face of the current economic crisis.
He was speaking on the sidelines of an ICZ and Association of Insurers and Reinsurers of Developing Countries (AIRDC) workshop that was premised on encouraging insurance practitioners to uphold acceptable underwriting standards while also looking into block chain technology among other things.
“Most of the paper available is not consummate to the inflation that is prevailing in the country. That is why we are lobbying with the regulator to try and come up with other smart partnerships, be it infrastructure development or low housing development. If those assets are given prescribed asset status, the industry will then store value,” he said.
Sanangurai said while short term insurers are supposed to make good of any loss that happens, there is no way they will be able to do that when they lose value in investments.
“If we eventually fail to settle claims then trust issues will come back to haunt us. But these are the challenges that come with a hyperinflation environment.
As a regulated entity prescribed assets is one of the things we are expected to invest in by the government and when the economy is performing very well you will find the insurance industry contributes immensely to the development of the country,” he said
“But in the absence of inflation index, it becomes difficult for insurers then to preserve value through prescribed assets. This is one thing we are lobbying with our regulator to try and bring us instruments or papers that will create appetite from the industry. It is a must that every insurance company should invest in prescribed assets which are more like government instruments.”
Government, upon the review of prescribed asset ratios indicated that it was against the backdrop of improving resource mobilisation to support key national projects.
However, they have remained an unattainable benchmark for many operators given the currency volatility that continues to bedevil the economy.
Sanangurai also bemoaned the new minimum capital requirements recently enacted by govement saying they will put a lot of business under pressure as they will also need to sweat their capital.
He added that the difficulties in performance and compliance will eventually worsen confidence issues in the industry.In a country rocked by economic instability and where pensioners and insurers have been robbed through currency transitions for the second time in a decade, analysts have contended that government should relook these minimum threshold requirements to ensure confidence prevails in the market whilst ensuring that savings are ring-fenced.