eBusiness Weekly
Tawanda Musarurwa
The Insurance and Pensions Commission (IPEC) has raised red flag that some players in the insurance and pensions sector could be transferring policyholder assets to shareholders.
This comes as the value of both sectors’ combined assets dwindled by around 90 percent from US$9,4 billion at the end of 2018 to US$1,4 billion as at the end of September 2019.
All things being equal, assets backing policyholder liabilities should be a key focus of insurance regulation, but in Zimbabwe there is lack of guidance in respect of separation of assets within the sectors.
“The general lack of separation of assets has led to transfer of policyholder assets to shareholders,” said IPEC Commissioner Dr Grace Muradzikwa this week.
“When you look at the total asset value as at the end of September, we are looking at RTGS$22,3 billion, this translates to about US$1,4 billion compared to US$9,4 billion in 2018. I think when you see us as a Commission emphasising the issue of valuation guidelines, these are some of the numbers that are worrying us, because how can we move from a total asset value of US$9,4 billion last year to US$1,4 billion presently, particularly given the structure of the sector’s assets, which are mostly property.”
Although the weakening of assets within the pensions and insurance sectors can be partly attributed to the currency policy adjustments that have taken place since the beginning of the year and the lack of a valuation guidance for the sectors, another key contributor may be poor corporate governance.
According to the Organisation for Economic Co-operation and Development (OECD) guidelines for insurers’ governance — which were prepared by the OECD Insurance and Private Pensions Committee, and adopted by the OECD Council on April 28, 2005 — company Boards should play a key role in protecting policyholder assets.
Reads part of the OECD guidelines:
“The Board’s main responsibilities should cover those functions essential to good governance, i.e.: reviewing and guiding the strategy of the insurance entity, including reinsurance strategies, major plans of action, risk policy related to the main insurance risks and annual budgets,; approving the pricing strategy, setting performance objectives, overseeing auditing and actuarial functions, and other oversight structures and monitoring the administration of the insurance entity in order to ensure that the objectives set out in the fund by-laws, statutes or contracts, or in documents associated with any of these, are attained (e.g. diversified asset allocation, cost-effectiveness of administration, etc.); . . . monitoring and managing potential conflicts of interest between board members and shareholders, including misuse of the entity’s assets and abuse in related party transactions.”
At the local level, enforcing separation of assets between shareholders and policyholders to avoid transfer from category to another is one of the key recommendations that came out of the Justice Smith Commission of Inquiry.
And Muradzikwa said the regulator is currently seized with the matter, mainly through strengthening the insurance and pensions legislative framework.
“We are mindful of the need to put in place a sound legal framework as the cornerstone for effective regulation, so the Commission revamped the Insurance, the Pension & Provident Funds, and the IPEC Bills, which are aimed at strengthening the existing insurance and occupational pension legislation,” she said.
