Zim reinsurers under threat

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THE Zimbabwe reinsurance industry is at risk, as it might fail to underwrite external business due to the Reserve Bank of Zimbabwe (RBZ)’s failure to timeously settle foreign obligations in excess of US$10 million for retrocession premiums.

Retrocession is a type of insurance where a reinsurance company takes on as part of the risk assumed by another reinsurance company.It aims at reducing the risk and the liability burden of the initial reinsurer by spreading out the risk to other reinsurance companies.

Zimbabwean reinsurers have over the years been doing business with other countries, necessitating the use of foreign currency.However, they pointed out that the enactment of Statutory Instrument SI 142 have further crippled its ability to repatriate retrocession premiums, with some of the legacy debts dating back to over five years.

Through SI 142, government banned the use of the multi-currency regime, making the Zimbabwe dollar the sole legal tender.However, this has only resulted in the rapid depreciation of the local unit to the greenback, decimating incomes and pensions.

Zimbabwe Association of Reinsurance organisations (Zaro) chairperson, Leo Huvaya told businessdigest that all reinsurers had complied with an RBZ directive to submit their legacy debts, but the central bank had not been forthcoming when it comes to honouring the agreements.

Following the introduction of SI 142,the central bank committed to assuming the foreign legacy debts at a rate of ZW$1:US$1 to rescue companies.

On the reinsurers part, this implies they are receiving premiums in Real-Time Gross Settlement (RTGS), while they have risks to settle in foreign currency.

“We are covering risk in Zimbabwe, receiving premiums in RTGS; and we need to pay in forex. So we have been in the queue for a while and we haven’t been getting priority. This means if we have a major claim, we might be exposed, as we will not be able to settle it. These legacy debts are dating back to five years and we have continuously failed to have access to foreign currency. We have paid the RBZ in RTGS as per instruction on foreign legacy debts, but the bank hasn’t honoured those and we have no information as to when they will deliver,” he said.

Market watchers have in the past expressed fears that the RBZ would struggle to honour the commitment, given that the country had been reeling from an acute foreign currency deficit and a debilitating liquidity crunch.

Huvaya, who is also the Emeritus Reinsurance managing director, says his company had a US$2 million exposure with the same amount having been submitted to the central bank in RTGS form.

“That is on our part as Emeritus. But all of us (reinsurers) have paid the RTGS to the central bank. It’s now the Zimbabwean reputation that is at risk. It also affects business in the sense that our integrity as a market will now be questioned, thus affecting business inflow. You can’t be a reinsurer for just one market. We need to do business with other markets, but at this rate it’s now very difficult. The central bank has not been not been saying anything. We don’t know when we will get the money,” he said.

Huvaya informed Finance minister Mthuli Ncube about the sector’s predicament at the inaugural insurance and pensions industry breakfast meeting on Monday this week. In response, Ncube said he was aware of the retrocession legacy debts, but pointed out that it was an issue for the central bank.

The viability of several companies has also been under serous threat in the half year in 2019 to date as a result of legacy debts denominated in foreign currency, with most companies’ full-year results reflecting the effect of the delays by the RBZ and banks in settling foreign obligations.

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