A wave of company closures hammering Zimbabwe’s fragile economy pushed the insurance sector to the brink in 2024, culminating in a brutal liquidity squeeze that forced several players to pay claims in instalments, according to a joint assessment released this week by four financial regulators and the ministry of Finance.
The Reserve Bank of Zimbabwe (RBZ), the Deposit Protection Corporation, the Insurance and Pensions Commission (Ipec) and the Securities and Exchange Commission of Zimbabwe warned in the 2024 Annual Financial Stability Report the cascading collapse of corporate clients, previously the backbone of premium inflows, inflicted severe revenue shocks on insurers and pension funds.
“Several direct short-term insurers were struggling to maintain liquidity, resulting in some settling claims in instalments,” the regulators said.
“A total of 10 out of the 19 short-term insurers and two out of 10 reinsurers had negative working capital and current ratios below 100%, indicating potential difficulties in meeting their immediate financial obligations,” the regulators warned.
“Financial stability risks persist, notably in the form of undercapitalisation and governance deficiencies in certain institutions, warranting ongoing regulatory and supervisory vigilance.”
It added that informalisation of the economy had weakened pension coverage, insurance penetration, rental yields and the valuation of commercial properties.
“In the outlook, the risk is expected to remain high in view of continuing company closures and downsizing instances, particularly in the retail sector,” the regulators warned.
By year-end, two reinsurers, three direct insurers, a life assurer, 10 insurance brokers and a micro-insurer had failed to meet minimum capital requirements, while 21 of 38 defined benefit pension funds were underfunded. A properly functioning insurance sector pays verified claims promptly and in full, using the capital and liquidity buffers prescribed by regulators.
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Instalment payments are therefore viewed globally as a sign of distress, usually emerging only after catastrophic events or temporary delays in reinsurance recoveries.
Their appearance as a routine mechanism in Zimbabwe signals deep liquidity stress, weakened balance sheets and an erosion of insurers’ ability to honour obligations, according to one analyst.
For policyholders, analysts said, instalment-based settlements can be devastating. Businesses cannot repair assets on time, households struggle to replace damaged property and delays compound the very risks insurance is meant to protect against.
In many markets, such behaviour would trigger heightened regulatory scrutiny, rehabilitation or curatorship.
The regulators said the underlying problems were widespread. Analysts noted that the prevalence of negative working capital in the sector pointed to an inability to meet immediate obligations. They attributed the pressures to inflationary shocks, unintended effects of currency reforms on long-term contracts, shrinking disposable incomes and rapid informalisation.
Beyond insurance, the report exposed deep vulnerabilities in the microfinance sector, which could become a major transmission channel for financial instability.
The portfolio-at-risk over 30 days stood at 11,47% — more than double the international benchmark of 5%. Analysts said this reflected high borrower indebtedness, weak financial literacy and punitive lending rates. Excessive consumer debt, the regulators warned, could compromise both lending institutions and the broader financial system if left unaddressed.
Concentration risk was also pronounced. The top 30 microfinance institutions controlled 80,81% of all loans, amounting to ZiG4,16 billion of the sector’s ZiG5,15 billion loan book. While the sector reported total equity of ZiG2,73 billion (US$105,85 million) and healthy capital adequacy ratios of 39,71% (Tier 1) and 44,49%, the RBZ cautioned that profitability was not a shield against systemic risk.
The operational self-sufficiency ratio of 182,63% showed the sector was viable on paper, but regulators stressed that viability could quickly erode if household over-indebtedness continues rising.
For the first time, authorities openly acknowledged the scale of company failures that had previously been downplayed in growth-focused narratives. Premium inflows, once supported by a vibrant corporate sector, have collapsed.
This has left insurers with deteriorating cash buffers, investment losses and mounting exposure to an economy struggling to generate long-term savings. The severity of the shocks, manifesting in capital erosion, negative working capital and the unprecedented shift to instalment-based pay-outs, reflects a sector under historic pressure, analysts said.
Major risks for the insurance and pensions sector in 2024 included macroeconomic, concentration, business and reputational risks, all rated high. Concentration risk stemmed from heavy reliance on funeral products and the monopolistic structure of the life sector, while investment portfolios remained heavily skewed towards property and listed equities.
Credit risk rose on the back of growing contribution arrears, which reached US$68 million, up from US$53,81 million in 2023. Regulators also highlighted governance weaknesses and emerging exposures tied to dollarisation and shifting regulatory frameworks.
