ZIMBABWE’S insurance sector is recording an uptick in foreign currency business as the market now prefers a more stable currency to avoid more frequent reviews of policies priced in local currency, NewsDay Business can report.
Weighted annual inflation for both the United States dollar and Zimbabwe dollar eased from 101,5% in January this year to 87,6% at the end of the first quarter of this year.
Monthly inflation decelerated from 0,7% in January to -1,6% in February and 0,1% in March.
Despite the slowdown in official inflation figures, the local currency has depreciated against the US dollar on the parallel market. The local currency has depreciated 58% against the dollar during the first quarter on the alternative market.
The alternative market premium also widened to 61% at the end of the quarter. The devaluation of the local currency and widening of the alternative market premium, imply serious adverse risks on both inflation out-turn and economic growth in 2023.
According to the Insurance and Pensions Commission (Ipec)’s first quarter report, the insurance industry was recording brisk business in foreign currency-denominated business.
“Growth in forex business is mainly due to the market preferring a more stable currency to avoid more frequent reviews of policies priced in Zimdollars, which are being affected by inflation,” Ipec said.
In the short-term insurance industry, foreign currency-denominated business increased by 52% to US$37,32 million during the first quarter ended March 31, 2023.
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The total foreign currency denominated business written by short-term reinsurers increased by 51% to US$38,55 million.
In terms of foreign currency-denominated gross premium written (GPW), Zep Re, WAICA Re and FM Re were the market leaders, controlling 56% of the market.
Two of the three micro-insurers — Golden Knot and Microsure wrote foreign currency-denominated business. The market leader in terms of foreign currency-denominated business was Golden Knot, with a market share of 98% while Microsure accounted for 2%.
The report shows that insurance brokers reported gross premiums written amounting to US$28,4 million.
Reinsurance brokers reported GPW amounting to US$17,9 million for the period under review.
For the quarter under review, the Life Assurance sector wrote foreign currency business amounting to US$10,5 million, an increase of 184% compared to the same period last year.
The Life Reassurance sector reported foreign currency business amounting to US$0,78 million for the period.
“Growth in forex business is an indication of the increase in forex-denominated risks being written by direct insurers,” the report read in part.
The main income drivers for forex business were GPW and investment income. The total claims paid in forex amounted to US$149 million, which translated to the claims ratio of 20%.
The underwriting profit for forex business amounted to US$477 million, which resulted in profit after tax of US$419 million.
Funeral assurance sector recorded a gross premium amounting to US$497 298 and R179 104. The report shows that foreign currency-denominated assets amounted to US$257 million in the pension sector, constituting 12% of the industry’s total assets.
“The holding of foreign currency-denominated assets helps in cushioning the assets from being eroded by inflation in the current hyperinflationary environment,” Ipec said.
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