Short-term insurers see rise in forex business

FOREIGN currency-denominated insurance revenue for short-term insurers rose 42,49% to US$53,18 million in the first quarter of the year, driven by motor, fire, hail and personal accidents contracts, a new report shows, as policyholders hedge against inflation.

In the comparative 2023 period, the foreign currency business was US$37,32 million.

This indicates an increase in short-term foreign currency related packages as the volatile currency environment continues to erode local tender contracts.

“Short-term insurers reported foreign-currency-denominated insurance revenue amounting to US$53,18 million for the first quarter ended 31 March 2024,” the Insurance and Pensions Commission (Ipec) said, in its new short-term insurance industry first quarter report ended March 31, 2024.

“The major sources of foreign currency-denominated insurance revenue for short-term insurers were motor, fire, hail and personal accident, contributing a combined 79% of the total insurance revenue.”

Before its demonetisation, the local currency, Zimbabwe dollar, had taken a sharp depreciation against major currencies, triggering an increase in the redollarisation of the economy.

The Zimdollar was in April replaced by Zimbabwe Gold, a currency backed by gold and forex reserves.

Ipec said the trend in foreign currency-denominated business was similar to the local tender business.

“Motor insurance accounted for 40% of the total insurance revenue. Foreign-currency-denominated motor insurance business is mainly driven by comprehensive cover as policyholders seek to preserve value,” Ipec said.

Local currency short-term insurance revenue was ZWL$812,96 billion at the end of the period under review.

In the comparative 2023 period, the total combined gross premium written by the short-term insurers was ZWL$51,05 billion.

The regulator revealed that new US dollar indexed capital requirements were now at an advanced stage, owing to the growth in the foreign currency business.

“All industry players are expected to assess their current capital positions against the envisaged new requirements to ensure compliance once the regulations are gazetted,” Ipec said.

“Further, the industry players are encouraged to measure their capital positions against the risk-based solvency regime under the ZICARP [Zimbabwe Integrating Capital and Risk Programme] framework.”

Nineteen out of 20 short-term insurers reported capital positions above the minimum capital requirement of ZWL$37,5 million during the reporting period.

Total assets amounted to ZWL$4,3 trillion over the same period, up from a prior year comparative of ZWL$166,89 billion.

However, seven short-term insurers reported losses owing to negative insurance results.

The industry, however, made ZWL$43,65 billion in profit from insurance coverage.

However, when factoring investment income of ZWL$1,13 trillion, the profit after tax for the period under review was ZWL$968,51 billion.

Over the comparative 2023 period, profit after tax was ZWL$11,52 billion.

Ipec said the investment income was mainly driven by fair value adjustments.

“Other expenditures not directly attributable to insurance contracts amounted to ZWL$102,92 billion culminating in a loss of ZWL$59,27 billion before other income for the period under review,” Ipec said.

Total investments in prescribed assets made by the short-term insurers amounted to ZWL$230,01 billion, translating to a sector compliance level of 7%, according to Ipec.

“Seven out of the 20 insurers were compliant with the minimum prescribed asset ratio of 10%,” Ipec said.

The prescribed assets were mainly Treasury Bills, corporate bonds, and equities.

“The low uptake of prescribed assets was due to the investment vehicles’ exposure to inflation and lack of value preservation,” Ipec said.-newsday