Zambian Business Times
Focus Life placed under Liquidation
Focus Life Assurance Limited (FLA), a locally owned and registered life assurance company regulated by Pensions and Insurance Authority – PIA of Zambia has been placed under compulsory liquidation. In a notice to stakeholders made available to the Zambian Business Times signed by Board Secretary D. Mudenda, the regulator PIA stated that it has exercised its powers under the Insurance Act and the Banking and Financial Services Act to place the insurer on compulsory liquidation.
Focus Life Assurance which is licensed to provide life assurance products to both individuals and corporates is part of the Focus Ironclad Group Limited which provides short term working capital finance, life assurance, general insurance, investment banking, and leasing solutions. The company was founded in 2010 and is based head offices are in Lusaka, Zambia.
The Focus Ironclad group is also renowned for its locally friendly working capital finance solutions that it had managed to tailor that include invoice discounting, payment guarantees, order finance, bridging finance, bills discounting, stock finance, and construction finance. The group had established itself as a viable alternative and a go to financial services provider for most local businesses when turned away by conventional banks which in Zambia’s case are mostly foreign owned and controlled.
In an exclusive interview today with Zambia Business Times- ZBT, Doreen Kambanganji Silungwe who is Pensions and Insurance Authority’s Communication Manager said Focus Life Assurance Limited was being put under compulsory Liquidation because it balance sheet was assessed and that its liabilities outweighed its assets, that the entity is actually insolvent, meaning that focus life assurance ltd is not able to honour its obligations as they fall due because it liabilities are more than its assets.
According to the insurance Act, the Authority cannot allow an insolvent company to continue operating, Silungwe told ZBT. “it is not prudent for us to allow an insurance company to carry on when we know that it will not be able to pay its obligations. In as much as we aim and have the intention to grow the industry, we also want to ensure that the insurance company’s are able to pay or honour its policy holders when it is time to make a claim,”
She further said that according to the law, focus life assurance has 30 days in which it should file in any objection and after the 30 days as elapsed, PIA will then advise policy holders and other entities which are held by this company (Focus Life) on the way forward and will ensure that we to follow what is in the Banking and Financial Service Act Cap 387 when it comes to liquidation.
Silungwe further advised Focus Life Assurance policy holders not to deposit any more money but wait for the Authority to give guidance. ‘ The authority will keep the public posted’ she stated. The PIA has also placed another insurer under compulsory liquidation, A-plus Life Assurance company Limited. The decision was arrived at by the registrar at the board meeting held on 24 May 2018.
The threat on the ironclad group comes from the expectation that the focus group companies would have come in to aid the life assurance business with some internal loans or some form of parent financial support to provide relief and avoid this situation. This clearly did not happen and that is where the questions are coming from. Efforts by ZBT to get a comment from the Focus group executives proved futile by press time.
Some stakeholders and local business houses spoken to by ZBT have indicated that the government will need to look at ways it can support local businesses in times of difficulty. Some countries have bankruptcy protection laws or mechanism to prevent failures of local companies were the circumstances resulting in balance sheet erosion are deemed to be down to general economic and at times currency management failures by state economic actors. Even temporarily regulatory takeover and later selling to new local owners are all options that can be exercised to give locally owned firms a chance of survival and growth.
The issue of government arrears will need to be addressed with the urgency it deserves as its mostly the local upcoming businesses that are mostly hit. The majority small and medium companies have limited options and end up with borrowed funds at very high interest rates.
These arrears have strained the local businesses as they do not have the same advantage as other businesses that are able to borrow externally and in USD at lower interest rates.
There is need for the regulator like PIA to not just look at applying the letter of the law but focus on the substance of wider economic variables. A good example is the local currency today, which is trading at ZMW10 per USD when in 2013/2014, the same currency was trading for ZMW5 per USD. For foreign exchange denominated repayments, the require twice the required amount of Kwacha to fund the same obligations. There exist widened exchange rate risk factors which is one reason why locally based firms having operational challenges because of rising finance costs.