Mounting inflationary pressures increase FLA US dollar business

Fidelity Life Assurance (FLA) says the inflationary environment obtaining in the country has seen the group increase its US Dollar business, at the same time developing products for the informal market, which is also primarily dollarised.

The group is a holding company providing products and services for life assurance, employee benefits, asset management, medical insurance, funeral assurance, actuarial services and residential property development.

This includes managing pensions, funeral insurance and microfinance in the informal banking market.

The company’s line of business is largely prone to value erosion due to hyperinflation. As was the case in the 2008 hyperinflation period, pensions and savings were wiped off, which up to today remains a factor in the country’s penetration rate for insurance and pensions.

Currently, the country’s environment is pointing towards hyperinflation, which has been a result of the steep depreciation of the Zimbabwe Dollar in recent weeks.

However, Reginald Chihota, Fidelity’s managing director, told Business Weekly that the company has devised three ways to offset the effects of the inflationary operating environment.

“We are doing it specifically in three ways. We are increasing USD business and targeting mass USD business because the USD is not really hyperinflationary,” he said in an interview after the company’s annual general meeting (AGM).

Chihota said the company is increasingly following where the money is, which coincides with the thrust, which includes increasing financial inclusion by embracing the informal sector.

“When you develop products for that market, it’s primarily a dollarised economy, and this will ensure increased USD revenues,” he said.

Chihota said that on business, which is not in USD terms, and to protect the policy holders, it invests in real assets within the confines of guidelines on investment.

“You park that money in real estate, and when picking stocks on the equities market, we want those that go a long way in preserving value.

“Some of the counters have migrated to the Victoria Falls Stock Exchange (VFEX), which trades exclusively in USD, which then protects our business,” he said.

On the ZimDollar book, Chihota said the company is also preserving value through inflation-adjusted premium reviews so that the benefits also remain relevant.

Chihota said apart from efforts to resolve the Langford Stand issue, the company is making significant investments in prime areas like Victoria Falls as well as onboarding land banks nationwide.

He said this is going to support the group’s best-selling product, which is Vaka Yako.

“We think that is where we can get value in terms of returns.

“But it also sits well with our other journey, in which we want to play more in the residential stand development, which will also directly benefit policyholders,” he said.

Chihota noted that the Langford issue will sooner rather than later be resolved, as all parties and stakeholders believe that the longer it drags, no one is benefiting.

He said the company is also creating space for Zimbabweans in the diaspora to also participate in the Vaka Yako product.

“They are more liquid in terms of USD, and they can provide money for the development of the land banks,” he said.

Vaka Yako, a unit-linked investment product, is designed to facilitate customers building up savings towards individual home ownership at an affordable cost.

The product is designed to help individuals grow their funds in a structured savings model that guarantees individual homeownership as the end product.

The scheme is an individual life insurance investment plan that permits individuals to purchase a stand from a pool of stands anywhere around the country for a range of between US$44 and US$400 per
month.

Giving a trading update for the period from January to April 2023, Chihota said the operating environment continues to be dynamic and fluid; hence, the group will ensure to adjust products and target appropriate market segments.

He told shareholders the business looks forward to rising to the challenges and ensuring it remains relevant.

Group revenue for the period grew 481 percent compared to the same period last year, driven mainly by increases in net premiums received and investment income.

“The growth in net written premiums was underpinned by new business as well as strong performance registered by the life book, which benefited from timely inflation-related premium reviews aimed at preserving value for the policyholders,” he said.

He noted that investment income was mostly attributable to fair-value gains on equities.

Chihota said during the period under review, the business also recorded an increase in USD-denominated revenue.

The group’s non-insurance businesses, namely micro-lending, asset management, funeral services and actuarial consulting services, contributed 11 percent of total revenue.

“These businesses continue to provide services within the group and to third parties,” said Chihota.

During the period under review, group expenses increased by 537 percent compared to the same period last year.

The group’s total expenses were mainly driven by benefits paid on claims, changes in insurance contract liabilities and operating expenses.

“The major driver of the increase in operating expenses was inflation-related and exchange rate movements, while net benefits paid and claims were driven by retrenchments and death claims,” said Chihota.

In its 2022 annual report, Fidelity said it registered a Real Estate Investment Trust (REIT) to spearhead value creation and infrastructure development through public and private partnerships.

REITs are vehicles that own, operate, or finance income-generating real estate, modelled after mutual funds.

In 2019, the Government gazetted a statute paving the way for the registration of various investment schemes with the Securities and Exchange Commission of Zimbabwe, such as exchange-traded funds and REITs (Statutory Instrument 240 of 2019).

Regulations for such instruments were subsequently published in the Finance Act No. 2 of 2020.
Group chairman, Livingstone Gwata, said value creation, growth and preservation of policyholder and shareholder investments remained at the centre of all operations.

“This broad objective influenced all investment decisions in capital, money and real estate markets,” he said.

He said in support of the product offering and rollout, the Group pursued an aggressive digital strategy to ensure maximum leveraging of the best-suited technological systems and platforms.-ebusinessweekly