Prescribed minimum asset ratio: Funeral assurers non-compliant
ZIMBABWE’S funeral assurers are not compliant with the minimum prescribed asset ratio of 10% as stipulated by the law, with indications that only ZW$210 000 (about US$2 500) was invested in prescribed assets as at December last year, against the required minimum amount of ZW$86,79 million (about US$1 million).
Prescribed assets ratio measures the percentage of pre-arranged retirement fund assets that, legally, would have to be allocated to certain government-approved instruments.
Generally they are meant to ensure that subscribing clients and beneficiaries’ savings remain secure in the future.
The Insurance and Pensions Commission (Ipec), with the approval of the Ministry of Finance, recently reviewed the prescribed asset framework to widen the assets recognised for prescribed asset purposes.
Statutory Instrument 206 of 2019 was then gazetted to enforce the requirements.
This was in line with the National Development Strategy 1 (NDS 1) and takes into consideration industry needs to ensure preservation of investor and policyholder funds.
But in its funeral assurance report for the year ended December 2020, Ipec said this week all funeral assurers were non-compliant with the law, a development that places funds of investors and policyholders at risk.
“As at 31 December 2020, all funeral assurers were non-compliant with the minimum prescribed asset ratio of 10% as stipulated by Statutory Instrument 206 of 2019. The total amount invested in prescribed assets was ZW$210 000 (about US$2 500) against the required minimum amount of ZW$86,79 million, which is 10% of the industry’s total reported assets,” Ipec said.
“The commission has also called upon the industry to come up with projects that can be accorded prescribed asset status as a way of improving their compliance. The funeral assurance industry players should endeavour to comply with applicable laws and regulations particularly on minimum capital requirements and prescribed assets ratios.”
Meanwhile, the sector’s inflation adjusted gross premium written (GPW) increased by 76,81% to ZW$61,11 million (about US$726 000) last year, mainly due to the players securing new business.
“The increase in GPW was also on account of premium increments as funeral assurers sought to align both the premiums and benefits to the macro-economic environment in response to inflation trends and remain relevant in serving policyholders,” the report said.
Six out of the eight players recorded significant growth of above 50%, and none of the players recorded negative growth.
The sector continues to face intense pressure and competition from life assurers writing funeral business.
During the period under review, life assurers wrote funeral assurance business worth ZW$540,60 million (about US$6,4 million).
This was nine times more than the business written by dedicated funeral assurers.
Three out of the eight funeral assurers reported capital positions compliant with the regulatory minimum capital requirement of ZW$62,50 million (about US$750 000) as prescribed in Statutory Instrument 59 of 2020.
“Most funeral assurers were non-compliant with minimum capital requirements and the commission urges players to ensure adequate implementation of capitalisation compliance roadmaps,” it said.
The commission reiterated the need for funeral assurers to have reassurance arrangements in place as a risk management strategy in order to manage their solvency positions.
The need for reassurance has been made more apparent given the strain of high claims experienced as a result of the current Covid-19 pandemic.