THE Insurance and Pension Commission (Ipec) has given local funeral assurance companies timelines through which they must stump up an additional US$4,6 million needed to comply with a local law that requires them to spend at least 7,5 percent of their assets on Government paper.
Government paper or prescribed assets are debt instruments or securities that are guaranteed by a sovereign government.
They are usually used to raise funds for capital projects.
Only US$480 274, or 0,79 percent, of the nine funeral assurers’ US$60,8 million in assets had been used to buy prescribed assets by March 31, 2017.
In order to reach the recommended 7,5 percent threshold, an additional US$4,6 million is required.
Doves, the country’s biggest funeral assurer with US$22,8 million in assets, has to spend US$1,7 million to comply, while Moonlight – the second biggest – has to shell out US$1,2 million.
First Funeral, which holds US$10 million in assets, needs to cough up US$759 000.
The three life assurance companies write most of the business in the sector.
Ipec commissioner Mr Tendai Karonga said last week it will take measures against players who consistently fail to comply.
Merging operations, he said, could therefore be prudent.
“It is a compliance requirement to meet the 7,5 percent prescribed asset threshold.
The funeral assurance industry is aware of this and Ipec has set timelines for them to come up with plans on how they will comply.
“Regulatory measures will be taken against those players who consistently fail to comply,” said Mr Karonga.
“Government paper remains an asset, which forms part of the insurer’s capitalisation. Besides, prescribed assets are a statutory investment whose returns improve the insurer’s capital. It would be much more effective and less burdensome if they merged.”
President of the Zimbabwe Association of Funeral Assurers (Zafa) Mr Solomon Chikanda said the nature of the business written by sector players makes it “difficult to mobilise sufficient liquidity to fund prescribed assets, some of which have tenure in excess of five years to mature”.
He, however, noted that the Ministry of Finance and Ipec had given them the latitude to come up with prescribed assets that suit the assurers’ asset-liability matrix.
“As Zafa, we are fully committed to the national cause through subscribing to prescribed assets. Subscription has admittedly been low due to our business model which is heavily biased towards provision of funeral services through investment in hearses, mortuaries, coffin making, etcetera, making it difficult to mobilise sufficient liquidity to fund prescribed assets, some of which have tenure in excess of five years to mature and yet if one passes on, duty calls for us to deliver service within 48 hours,” he said.
But some of the funeral assurers seem to be in distress, with the capitalisation of three companies – Orchid (US$708 000), Foundation (US$918 000), and Passion (US$644 000) – being way below the minimum capital requirement of US$1,5 million.
Ominously, the requirements are set to be increased further to US$2,5 million once a new Statutory Instrument is published, which might affect three more companies (Ruvimbo, Sunset and Vineyard) whose capital is presently below US$2 million.
What is even worse is the fact that life assurers are beginning to muscle life assurers out of their own turf.
During the first three months of the year, life assurers wrote 76 percent of the funeral business, while 22 percent of the remaining 34 percent was written by the three big companies – Doves, Moonlight and First Funeral.
In a statement accompanying first quarter report for the sector, Ipec said: “Competition from life assurers writing funeral assurance business is growing every quarter and appears to suggest that life assurers now concentrate on funeral assurance business.”
But Zafa says it does not envisage any turmoil in the sector.
“Raising new capital has been a challenge in post-dollarised Zimbabwe generally because of weak performance in the capital markets, money markets and real sectors in which insurance companies invest policyholder premiums.
“We continue to engage with the regulator towards achieving a win-win outcome in this respect.
“I can also hasten to commend IPEC for relaunching the micro-insurance thrust wherein anticipated minimum capital requirements are favourable enough to accommodate funeral assurers who may fail to sufficiently comply with the new capital requirements.
“Consequently, we don’t envisage any turmoil in our sector as there are adequate safeguards and alternatives.
“In fact, funeral assurance is micro-insurance in nature where we offer flexible and affordable funeral policies in sympathy with our customers’ pocket and preferences,” explained Mr Chikanda.
Ipec is also understood to be browbeating industry players to cut back on management expenses, which now account for over 60 percent of total costs.
Also, corporate governance issues, especially where founding shareholders retain a vice-grip on businesses, are also some of the critical issues that are now being addressed by the regulator.
A new regulatory framework that will vet the calibre of management and directors is in the offing.
Already, Ipec has come up with Risk Management and Corporate Governance guidelines to deal with weaknesses in the ownership of the funeral assurance industry.
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