Insurers snub actuarial services


Insurance Institute of Zimbabwe president, Edward Gomba

MOST insurance and pension firms in the country are avoiding actuarial services due to high fees and are now submitting reports to the regulator, the Insurance and Pensions Commission (IPEC), without key validation, the Financial Gazette’s Companies & Markets (C&M) has established.
IPEC head of risk management, Josphat Kakwere, revealed this at a recent convention of industry players, saying reports without actuarial input may result in serious consequences as values could be incorrect.
“The financial statements are finalised before the finalisation of actuarial review. This is a chicken and egg issue,” said Kakwere.
“We are getting reports without actuarial review certification. This is a worrying situation and there is need for serious reform in the industry. We will say the figures are not correct values because (they would) not have been certified by actuaries. Are we taking the actuarial review seriously or we just want to submit the reports to the regulator?” Kakwere asked.
The president of the Insurance Institute of Zimbabwe (IIZ), Edward Gomba, two weeks ago expressed concern over high fees charged by actuaries in the country, which he said were “unreasonable”.
Gomba warned that the actuarial fees were likely to push players in the insurance and pensions industry, who rely heavily on actuarial expertise to solve complex financial situations, out of business.
Actuaries are employed to price financial products, capital management, risk management, business planning and support, mortality investigations, health and sickness investigations, asset-liability matching, financial reserve calculations, software development and legislative consultancy.
C&M understands that actuarial charges range from US$20 per hour for a junior analyst coming straight from university to more than US$300 per hour for a consultant with more than 15 years work experience and appointed or statutory or actuarial function holders.
Tawanda Chituku, an actuary, said most fee structures were quality and time based and “it depends on the level of difficulty of an assignment and how much time it is expected to take”.
“In general, actuarial fees are based on three main things, namely the amount of time spent, level of professional responsibility and the level of specialisation involved and use of proprietary software,” said Chituku.
Government requires insurance companies to invest 10 percent in prescribed assets but Kakwere said there was general low uptake of these assets, which include power and water assets which are key economic enablers.
“We should be compliant with the prescribed asset requirement,” said Kakwere.
A market analyst told C&M: “It’s not about the shortage of prescribed assets in the market. In 2015, companies had lots of retrenchments, so they don’t have the liquid to purchase the paper.”
Although a number of projects in Zimbabwe have been accorded prescribed asset status to raise the required funding, there has been low uptake mainly because of unappealing features, such as the coupon rate, guarantor of the paper or bond and to a lesser extent, the duration.
Most bonds that have government as the guarantor have relatively underperformed in the past compared to the ones which have other guarantors outside government.
Government has been increasingly weighed downed by its failure to meet its obligations due to cash problems and is now considered to be “too broke” to offer any guarantees.
Market watchers said it was now critical to develop a bond market to allow insurance companies and pension funds to trade these assets as a way of meeting their financial needs and supporting infrastructural development.
The Zimbabwe Stock Exchange anticipates the capital markets regulator, the Securities and Exchange Commission of Zimbabwe (SECZ) to approve its request to revive a regulated bond market, which became inactive 15 years ago.
The local bourse submitted the bond market concept to the regulator last year.
But, SECZ is still assessing the possibility of re-introducing such a market.

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