BY MELODY CHIKONO
THE looming forensic audit on First Mutual Life Holdings (FML) has hindered the conclusion of a compensation process that was expected to clear the decade-long pension and insurance losses. Last year, the Insurance and Pension Commission (Ipec) laid out modalities to compensate insurance and pension losses suffered prior to 2009.
The forensic audit on FML to be conducted following a directive by Ipec was necessitated by the company’s non-compliance to the asset separation process, which the industry regulator mandated all players to implement in 2021.
Separation of assets by pension funds and insurance companies was identified as a key pillar in unlocking value of policy holders as it had become difficult to effect compensation on monetary asset losses in the face of hyperinflation.
As it is, FML is the only company that has not fully complied with this directive.
There are indications that during the course of the process, FML failed to comply with the separation of assets to the satisfaction of the commission. Ipec public relations manager Lloyd Gumbo said the regulator now has terms of reference for the audit.
“We want to see what they are hiding. We will only be able to get that from the forensic audit. Separation of assets is part of our efforts to implement the recommendations of commission of inquiry to allow for compensation,” he said.
“For us to get to compensation, we should know these are the assets for policy holders and these belong to shareholders. So as long as we have not completed that process with FML, we cannot also conclude the process. The asset separation is precedent to compensation.”
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Following pension losses, a Commission of Inquiry led by Retired Judge Justice George Smith was set up in 2015 to probe the process used in converting pensions and insurance benefits after the 2009 dollarisation.
After the recommendations by the Commission of Inquiry, Ipec established a working group to facilitate the closure of compensation of the policy holders and pensioners for the loss of value suffered due to hyperinflation in 2007 and 2008 and the country’s adoption of a multi-currency system in 2009.
“We have been carrying out an assets separation exercise in terms of the Insurance Act and Pensions and Provident Funds Acts. Insurance companies and pension funds are required by the law to have a physical separation of assets and FML did not comply with the separation to the satisfaction of the commission,” Gumbo said.
“They are requested by the law to separate assets. They were not complying with the separation to the satisfaction of the commission and were not forthcoming in providing data requested by the consultant. If you find it difficult to provide the data, we now institute an audit.”
Ipec is on record saying while there are arguments on value erosion on the monetary asset, the regulator says, the loss of value being sought should be strictly on monetary assets.
There has been a constant lack of separation of policyholders’ assets and shareholders’ assets in equities and properties investments resulting in short-changing of pensioners and policy holders.
There have been arguments that inconsistencies in timing and methodologies of asset management valuations used by pension funds and insurers have contributed to poor benefits paid out by most funds.
In light of this, Ipec this year rolled out guidelines that seek to provide standards to be adhered to by industry on treatment of revaluation gains emanating from the currency reforms.
