Pension schemes and insurance companies provide social protection, and financial security and mitigate risks.

Thus, pension funds and insurance companies should be efficient to ensure greater income security and improved service provision.

The economic agents have lost confidence in the sector because of increased inflation and exchange rate misalignment.

Hence, there is a need for hedging against risk when investing in the insurance and pensions industry.

Some of the recommended investment options are explained in the sections which follow.

Investing in Mosi-oa-Tunya gold coins

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Gold coins maintain their value over longer periods even in financially and politically uncertain times.

When global tensions are high, or confidence in government economic policies is low, gold tends to outperform other investments.

The gold coins have been prescribed asset status, so insurance companies and pension funds can use them to meet regulatory requirements for prescribed asset investments.

Pension funds and life insurance firms should hold 20% of their portfolios in prescribed assets. Life assurance and short-term insurance must hold 15% and 10%, respectively in prescribed assets.

This means the regulated entities now have a wider choice to reach their compliance levels by investing in gold coins.

At the end of July 2022, 2000 gold coins have been released to the market at an ongoing price of US$1823.80 per coin, translating to US$3.6 million (Monetary Policy Statement, 2022).

Within the first week, all the released coins were already sold, indicating that the volume is on the low side.

Thus, there is a need to increase the volume of gold coins to allow more participants in the gold coin market especially insurance companies and pension funds.

The Insurance and Pensions Commission issued Circular 39 of 2022 advising insurers and pension funds that they now have the option to invest in gold coins to promote the uptake of the asset in the industry. In line with Investment Guidelines (issued through Circular 1 of 2013 and Circular 2 of 2022), the upper limit investments in prescribed assets, including gold coins are 40% of the asset portfolio.

The Insurance and Pensions Commission also requested the industry to provide monthly updates concerning gold coin transactions facilitated by entities for purposes of tracking the uptake of the asset.

Furthermore, the Commission continues to monitor investment developments and facilitate engagements with the central bank when the industry needs clarity regarding gold coins.

Investing in livestock

Cattle, sheep, pigs and goats are some of the biological assets that maintain stable value even in an inflationary environment.

 Livestock also yields value over time due to their potential reproduction rate.

Thus, when the biological asset produces an offspring, the value of that offspring is added to the client's portfolio.

Therefore, investing in livestock may be a way of inflation-proofing for both insurance companies and pension funds.

However, the investment guidelines issued by the Commission through Circular 2 of 2022 do not prescribe whether pension funds and insurance companies are allowed to invest in livestock and there are no prescribed limits for the biological asset class.

Thus, biological assets should be added as another investment asset class prescribed in the Investment Guidelines.

Payment of retirement packages in gold coins

The government should also consider allowing retirement packages to be paid in gold coins.

This would give the long-serving members a good send-off and an ideal store of value for their pensions.

Since the gold coins should be liquidated or traded after 180 days, retirees can be exempted from the timeline and be allowed to liquidate when the need arises.

Improvement in transparency

The Reserve Bank of Zimbabwe needs to promote and improve transparency by dealing with misconceptions about the coins pointing to the notion that gold coins represent a get-rich-quick scheme and an arbitrage opportunity for those with connections and deep pockets.

This is critical in generating market confidence and market goodwill, which is required to enhance the attractiveness of gold coins as high quality assets desirable for insurance companies and pension funds.

Increasing quantity of gold coins

Considering that the Reserve Bank of Zimbabwe would like the gold coins to be an alternative investment asset for investors, all the gold coins were sold during the first week of their release into the market.

As the RBZ is set to release smaller denominations of gold coins in November 2022, it may consider releasing coins worth at least US$1 billion market for the coins to have the desired impact and reach more economic agents.

Government support in the development of pensions dashboards

In the medium to long run, the government may financially support the Insurance and Pensions Commission in the development of pensions dashboards regulations as well as during the consultation process seeking views relating to the created draft pensions dashboards regulations.

The government can also financially assist the regulator to conduct pension dashboards implementation readiness assessment. 

In addition, the government may also assist with the quick approval of the regulations and pension dashboard standards once they are developed.

Investing in digital skills

Zimbabwe has a good foundation upon which digital skills could be leveraged if training for both teachers and students is scaled up, and coordination and data flow are improved.

The rapid pace of innovation, together with a supply-side failure to deliver the required digital skills, means that many businesses, service providers, and organisations struggle to obtain employees with the right skills to harness technological opportunities.

Therefore, investments by the government are needed in basic and post-secondary education with a special focus on digital skills development.

Issuance of inflation-indexed instruments and foreign currency-denominated bonds

Government should consider issuing more value-preserving instruments, for example, inflation-indexed instruments and foreign currency-denominated bonds to retain value for policyholders.

 This may stimulate the industry to continue participating in the Government securities auction.

Review of legislation

The review of the legislation or guidance in determining appropriate mortality tables to be used for actuarial valuation or pricing.

This will provide appropriate guidelines on the mortality tables to be applied for the respective actuarial works.

 In conclusion, we urge the government to expedite the legislative processes of the Insurance Bill and the Pension Bill.

The envisaged legal reforms will strengthen IPEC’s regulatory framework and help create a conducive business environment, that for example provides for companies to make offshore investments, thus, allowing the entities to invest mobilised resources in markets earning competitive rates of return. 

Furthermore, to restore confidence and build public trust in long-term insurance products that promote gross savings, we recommend the government issue unequivocal guarantees that the United States Dollar denominated policies that insurers are selling will remain as such into the future.

 The government also needs to create a stable operating environment characterised by a stable exchange rate and low inflation rates for the industry to effectively contribute to economic growth and employment creation.

  • Ronald Zvendiya* is an independent policy analyst. For feedback: rzvendiya@gmail.com,
  • These weekly articles are coordinated by Lovemore Kadenge, an independent consultant, managing consultant of Zawale Consultants (Private) Limited, past president of the Zimbabwe Economics Society and past president of the Chartered Governance & Accountancy Institute in Zimbabwe.. Email - kadenge.zes@gmail.com and mobile No.+263 772 382 852.

 
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