Year-end financial results released by insurance companies this week show that while the sector is emerging from a decade long recession following liberalisation of the financial services sector and the introduction of the multi-currency payment system, empowerment regulations forcing foreign owned companies to cede at least a 51% stake to locals have set back insurance companies’ investment plans.
Insurance companies, which invest on behalf of policyholders, are the largest institutional investors on the ZSE.
A February trading update report accompanying Fidelity Life Assurance financial results shows that the company made a US$73 000 loss in investment income on the bourse as it retreated after the regulations were announced on January 29.
Investment income is capital derived from premiums which insurance companies invest on equities before paying out matured policies.
Fidelity Life managing director Simon Chapereka on Wednesday told media and analysts that the regulations were affecting the value of the company’s investment portfolio.
“We have been affected by what has been happening to the country, particularly the issues relating to the political environment and the indigenisation regulations,” Chapereka said. “Basically we have incurred a $73 000 loss in investment income up to February.”
Fidelity, Chapereka said, did not underwrite any new first year premiums but managed to reinstate 12 000 policies. Statistics show that the insurance company had close to 300 000 policies at peak in 2000.
NicozDiamond Insurance, one of Zimbabwe’s leading insurance companies, had a similar story to tell.
NicozDiamond, which posted US$1,6 million profit after tax, had its ZSE investments affected by the regulations. The company has interests in blue-chip stocks on the ZSE.
Grace Muradzikwa, NicozDiamond MD, said the group made $593 161 loss in February for its investment income after the regulations were gazetted.
She however said the company, currently accounting for an estimated 20% market share, would push its market share to 25%.
“Because of what is happening in the country we have decided to take a step back in terms of business growth and recruitment,” Muradzikwa said.
Rival insurance company Zimnat Lion a firm owned by diversified investment company TA Holdings is also keenly following the indigenisation debate despite injecting US$4 million to local insurance investments that include Zimnat Lion, Zimnat Life and GrandRe.
TA recorded a US$1,4 million loss on the back of poor operations of its Zimbabwe investments. The group has business interests in South Africa, Botswana and Nigeria.
Bothwell Nyajeka, TA group chief finance officer said Zimnat Lion has underwritten close to half of the entire premiums made last year.
“Insurance companies are developing new packages, especially individual life products,” he said.
“Just this year alone, Zimnat Lion has written premiums of $4,3 million, against $9,6 million for the whole of 2009. Zimnat Life has recorded $748 000 versus $3 million for the whole of 2009, while GrandRe has written $723 000 compared to $1,9 million over 2009.”
Commenting on insurance investments under the TA group, New Africa Securities said the group could register growth buoyed by its Botswana operations.
“The group’s insurance business is expected to continue being driven by Botswana Insurance Company Ltd (BIC) which recorded an underwriting profit of US$ 3,573,158 while the Uganda and Zimbabwe operations continue seeking firm footing,” reads the stockbrokers’ commentary.
“Local insurance business is not expected to show any exceptional performance soon as the population’s expenditures are currently focused on non discretionary and capital expenditures.”
Chido Chakanyuka, NMB Corporate Finance and Advisory manager, however says business could this year grow for local insurance companies.
“Insurance business is expected to pick up significantly because of the very high risk of loss (asset replacement) as a result of dealing in hard currencies,” said Chakanyuka.
He, however pointed out that tight liquidity on the market could slow down the rate of recovery.
“Insurance is becoming a must rather than an option and banks are becoming more particular about insurance cover on the assets of companies that they lend money to,” he said.