$60bn insurance sector exposure on ZSE

 

$60bn insurance sector exposure on ZSE

HARARE, The Insurance and Pensions Commission (Ipec) is engaging authorities on the recent suspension of trading on the Zimbabwe Stock Exchange (ZSE) to protect the industry’s $60 billion exposure on the market.

This comes as a regional think-tank Renaissance Capital has warned that Zimbabwe’s decision to close its stock exchange risks upending plans to start a new foreign-exchange denominated equity market in Victoria Falls.

According to the regulator, the industry’s exposure in the market at the end of March — when the local bourse had a capitalisation of $64 billion — exceeded $18 billion and accounted for more than a third of the industry’s total assets.

The market had grown to $220 billion by June, when the government suspended trading, meaning the industry’s exposure probably had soared to $60 billion by then.

“If the suspension of the exchange remains in force for the next couple of months, the insurance and pension industry will definitely be negatively affected. We are engaging relevant authorities to find a solution to this challenge,” Ipec commissioner Grace Muradzikwa said in emailed responses to The Financial Gazette.

The development also comes as Ipec has started penalising insurers for not meeting prescribed asset requirements, and demanding compliance plans from transgressors to induce conformity, with most non-compliant entities having already submitted their plans to the regulator.

Muradzikwa said while the compliance plans are not solely premised on disinvestments of equities from the stock market, “for the entities whose compliance plans entail ZSE equities disinvestments, those plans will be temporarily affected by the suspension, given that the players cannot currently sell their shares”.

It also follows that inability to sell stocks will affect the industry’s liquidity, and not being able to invest in stocks will minimise the industry’s options for value preservation.

Zimbabwe is in its second episode of hyperinflation in a decade, with the government reporting it at 737 percent for May, and stocks had become the de facto safe haven.

“There are limited investment options in an inflationary environment resulting in negative real returns… the absence of inflation indexed paper is a challenge… There are also some entities, which have been given dispensation to write forex business, but there are no options to invest these forex holdings in,” Muradzikwa told journalists in March. This also comes as Ipec had raised a red flag over the industry’s asset concentration in equities and properties.

“We understand that this is happening because insurance companies and pension funds are looking for value preserving assets, but this then brings liquidity risk,” the commissioner said in March adding that the situation exposes the industry to “considerable” investment risk.

To widen the spectrum of investment avenues for the industry, Finance minister Mthuli Ncube says the government is pushing for the introduction, this year, of real estate investment trusts and similar products.

On the other hand, the central bank has said it plans to introduce exchange rate indexed instruments, with adjustable interest rates.

Still, the indexed instruments’ usefulness in value preservation will be limited to the auction system’s integrity as an “open market”, which experts have said is compromised. (FinGaz)