Equities boom spurs life insurers asset growth

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Yesterday,  the Insurance and Pensions Commission unveiled, the ‘Second Quarter (Q2) Life Assurance Report for 2017’, which puts the operations of life insurers and reinsurers under the microscope.

Based on the findings of the report, the combined asset base of life insurers grew by 29 percent. One of the main factors driving this growth this year as compared to last year was the positive trend on the Zimbabwe Stock Exchange which saw the stock exchange market capitalisation reaching a new all time high of $13,12 billion on Monday.

Zimbabwean Life insurance companies are  investing even more in equities, as the instability in the money market has fuelled demand for stocks.

Some of the Insurance companies listed on the ZSE have seen exceptional growth in their stock, Old Mutual on Tuesday, added 6,68 percent to trade at 1,250.63 cents, while First Mutual Life (FML) advanced 19,92 percent to settle at 14,39 cents.

According to the Q2, 2017 Ipec report, assets in equities increased by 99% as equity assets ballooned from 347 million in June 2016 to 690 million in June 2017. This also spurred a significant increase in the contribution of equities to combined assets.

According to the Ipec report equities constitute 37% of combined assets as compared to 24% during the same period last year.

Equities bundled together with properties constitute 63% of the life industry combined assets. Money markets and other investments constitute 10% each, while prescribed assets constitute 15%. Cash constitutes just a percent of the combined assets.

Put simply, equity is ownership. In the trading world, equity refers to stock. Generally, insurance companies invest the money they are paid by customers in stocks and bonds.

“Equities and properties constitute 63% of the life industry total assets despite a decrease by 9% in the value of properties from USD545 million in 2016 to USD493 million in the current quarter,” said Ipec

“Total assets for life insurance companies as at 30 June 2017 were USD1.87 billion compared to USD1.45 billion for the same period in 2016. This gave a growth to 29% in the industry’s combined asset base which was due to the current rally on the fixed property and equities,” added the commission.

Financial investments in equities can yield higher returns, but if they crash like what happened in 2008, there is no tangible asset left unlike savings in, say, real estate or gold.

As a result the insurance regulator encouraged players in the industry, “to be prudent in their asset spread strategies in order to manage the investment risk. The industry should ensure compliance with investment guidelines.”

This comes as four life companies, life insurers; Econet Life and Zimnat Life, and life reinsurers Grand Re and Zep Re are yet to comply with prescribed asset ratio of 7,5 percent.

Spreading of investments in different asset classes and complying with prescribed investment guidelines would help insurers to meet their financial obligations to their customers in the event of an unusually large number of claims being made.

The Commission says it is prepared to take punitive measures against those those firms that fail to comply with the regulator’s prescribed minimum investment thresholds.

“The Commission will not hesitate to take regulatory action against noncompliant
players,” said the industry regulator.

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