Funeral assurers failing to meet minimum Prescribed Asset ratio

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    Harare – All funeral assurers continue to be non-compliant with the minimum Prescribed Asset (PA) ratio of 10.00% as announced in the 2019 National Budget Statement, the latest industry report has shown.

    In its latest industry report for the second quarter ended 30 June 2019 covering the operations of nine funeral assurance companies namely Doves, First Funeral, Foundation, Moonlight, Orchid, Passion, Ruvimbo, Sunset and Vineyard, the Insurance and Pension Commission (IPEC) disclosed that only 0.53% of total assets were invested in PA.

    “Industry investments in PA decreased by 23.30% from $1.25 million as at 31 March 2019 to $961,000 as at 30 June 2019,” IPEC said.

    Prescribed asset normally take the form of sovereignty paper and in Zimbabwe Treasury Bills are the most common. While TBs have been key in cushioning government from going broke, they have equally been the main driver of inflation and exchange rate weakness.

    In spite of these developments government has went on to increase the minimum prescribed asset status to 20% for pension funds from 10% effectively driving demand for TBs up.

    Most pension funds and asset managers have struggled to match the increase largely to 2 factors: Asset values converted from USD to Zimdollar have astronomically surged. This is evidenced by a surge in most companies’ balance sheets since the return of the Zimdollar.

    Higher asset values meant the threshold of TBs has to equally increase to keep the required ratio in check.

    So for most players 10% became an even higher target worse still the new requirement of 20%. The new requirement of 20% starting January 2019 meant pension funds and insurers have to double their commitments towards prescribed assets, largely being TBs.

    This has resulted in oversubscribed issues on the $90 TB papers recently issued. Bids averaged about 14.5% a mere 4.5% above the average of 10% on TBs issued since 2015.

    The yield is very low such that it has given government a false sense of comfort.

    According to IPEC report, Gross Premium Written (GPW) by the nine registered funeral assurers increased by 20.35% to $25.24 million during the six months ended 30 June 2019 from $20.97 million recorded in the same period last year.

    Reinsurance by funeral assurers remained low as the retention ratio stood at 99.94%.

    “The increase in GPW was attributed to an increase in recurring premiums from both individual and corporate business which increased by 37.00% and 7.00% respectively,” IPEC said.

    Seven of the funeral assurers registered positive growth in net premium written with Doves Funeral Assurance Company which registering growth of 30.40%, Moonlight Funeral Assurance with a growth of 23.42%, Vineyard Funeral Assurance Company registered growth of 32.00, Orchid (59.62%), Sunset (175.41%), Passion (9.38%) and Foundation (3.42%).

    On the other hand, 2 funeral assurers First Funeral and Ruvimbo registered negative growth of 12.38% and 8.42% respectively.

    Profit before tax increased by 1179% from $1.97 million for the six months ended 30 June 2018 to $25.20 million for the six months ended 30 June 2019 driven by fair value adjustments by one funeral assurer on its properties, which resulted in an upward trajectory of profit before tax.

    Total assets increased by 133.01% from $77.31 million as at 31 March 2019 to $180.14 million as at 30 June 2019.

    “The increase in the asset base was based on revaluations conducted by funeral assurers on their properties,” IPEC said.

    IPEC also highlighted that four out of the nine funeral assurers reported capital positions below the regulatory minimum of $2.50 million based on their unaudited financial statements as at 30 June 2019.

    Meanwhile, total technical liabilities increased by 64.56% from $20.50 million as at 31 March 2019 to $33.74 million as at 30 June 2019.

    The number of policies written increased by 28.06%, whilst the sum assured increased by 9.48% from 340,000 policies with a total sum assured of $192.81 million for the six months ended 30 June 2018 to 435,000 policies with total sum insured of $211.08 million for the comparable period in 2019.

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