News Africa07 Dec 2020

Zimbabwe:Regulations revised to allow insurers to conduct business in foreign currency

07 Dec 2020

Regulations that allow insurance companies and pension funds to carry out business in foreign currency have been promulgated, a move that will help these entities hedge contributions, investments, and assets against inflationary pressures.

The statutory instrument adopted to allow this reads, “It shall be permissible to charge and to tender foreign currency in payment for the following transactions—international travel insurance; motor insurance for vehicles in transit; customs bond insurance; bank cash in transit; third party motor insurance payments for foreign-registered vehicles; safari operators insurance; export credit insurance; importers and exporters on cost, insurance, and freight; exporters’ insurance, including mining houses and tobacco merchants; special insurance policies for strategic national assets, including electricity equipment and stations, and aircraft equipment.”

Insurance companies are now also required to meet their obligations in foreign currency if premiums were paid in that currency, according to a report in The Herald.

Zimbabwe has reverted to the mandatory exclusive use of the local currency alone in domestic transactions since the return to the Zimbabwe dollar in June 2019 from a multi-currency system.

However, due to inflationary pressures that re-emerged following the currency conversion process, the sector lobbied the government to be allowed to carry out business in foreign currency so as to protect contributions and investments.

Earlier this year, IPEC commissioner Dr Grace Muradzikwa revealed the Commission was being inundated with requests from insurance companies and pension funds to issue US dollar-denominated policies.

“We have seen a high demand for US dollar-denominated policies. Almost on a daily basis, the Commission has to review and assess applications for US-dollar policies,” she said recently.

Pension funds

The revised regulations also allow foreign currency transactions for “payments of pension or provident funds contributions to pensions or provident funds, by any entity approved by a legal instrument to settle local contracts or pay local employee remuneration in foreign currency”.

Furthermore, to the extent that a key component of the pensions value chain is investments, the government will also require pension and provident funds to “invest the contributions in investment instruments denominated in the same currency the contributions are made; and in respect of fund members whose contributions have been paid in foreign currency, through nostro accounts, pay such member’s benefits in the currency in which the contribution has been paid”.

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