Its difficult to mobilise sufficient liquidity to fund prescribed assets: Funeral Assurers

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Speaking to the Sunday Mail, President of the Zimbabwe Association of Funeral Assurers (Zafa) Mr Solomon Chikanda said the nature of the business written by players in the funeral assurance sector makes it “difficult to mobilise sufficient liquidity to fund prescribed assets, some of which have tenure in excess of five years to mature.”

Funeral Assurance Companies are required by law to have at least 7,5 percent of their liquid assets on Government paper.

However, most funeral assurance companies have failed to shell out money on government bonds.

By March 31, 2017, 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 .

This forced the regulator the Insurance and Pension Commission (Ipec) to give funeral assurance companies timelines to invest an additional US$4,6 million that is needed for them to be in compliance with the law. 

“Regulatory measures will be taken against those players who consistently fail to comply,” warned Ipec Commissioner Mr Tendai Karonga.

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.

Government bonds are supposed to form part of funeral assurance companies’ capitalization whose returns should improve their capital.

Mr Chikanda said that while funeral assurers were committed to the national cause, through investing in government bonds, this nature of investment would make it difficult for them to meet their contractual obligations.

According to Chikanda Funeral Assurers have to deliver services like hearses, buses within 48hrs notice of death. Funeral Assurers thus need to have enough liquid cash to sponsor such services. Making investing in prescribed assets which might take up to five years to get a return on investments, challenging for the sector.

The Zafa president then implored Ipec 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.

Ipec however, encouraged those funeral assurers who could not afford to meet the statutory requirements to merge.

Commissioner Karonga is on record saying that the prescribed assets and the minimal capital requirements are there to protect policy holders from weak and insolvent insurers.

RELATED ARTICLE: Funeral assurers seek exemption from minimum capital requirements

“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,” Karonga said.

‘Meanwhile some 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.’

Three more insurers will be in the deep end if the minimum capital requirements are to be increased to the proposed US$2,5 million.  Ruvimbo, Sunset and Vineyard whose capital are currently below US$2 million will be affected.

Source: Sunday Mail

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