Following my last article on  Exchange Control Regulations of 2020 and in particular the recently promulgated SI 268 of 2020 which now permits the Insurance and Pensions Commission (IPEC) to collect levies in foreign currency, the Exchange Control Regulations have since been further amended by the promulgation of Exchange Control (Exclusive Use of Zimbabwe Dollar for Domestic Transactions) (Amendment) Regulations, 2020 (No. 4). In this article I review the latest legal provisions on currency and how they impact the Insurance and Pensions Industry.


The issue of currency remains an area of concern for the Insurance and Pensions industry and any discussion on it brings with it much anxiety and confusion with both the policyholders/insured and the Insurance companies finding themselves in difficult positions arising out of the uncertainty created by the regulations. It is not a secret that pensions have been devalued over the years, leaving policy holders at the back foot and insurance companies and pension funds unable to satisfy the needs of their customers.


Following the adoption of the multicurrency regime in 2009, Zimbabwe reverted to the exclusive use of the Zimbabwean dollar in 2019. This was done through various legislative instruments, particularly the Finance Act No.2 of 2019 and Statutory Instrument (S.I) 212 of 2019^[1]. S.I 212 of 2019 provides for exclusive use of the Zimbabwean dollar to settle all domestic transactions as well as penalties for  non-compliance. It also provides exceptions  for the use of foreign currency in certain transactions. This latest statutory instrument 280 of 2020 creates further exceptions permitting insurance and pensions business to operate in foreign currency in particular circumstances. It is thus pertinent to note that depending on the class of insurance and the source of funds, insurance and pensions policies can either be lawfully denominated in local currency or foreign currency.


In order to understand the latest provisions on currency and how they impact the insurance and pensions one has to appreciate the preceding Exchange Control legislative provisions. These include Statutory Instrument 212 of 2019, SI 85 of 2020 and SI 185 of 2020 (which have been discussed in my previous articles).


What does Statutory Instrument 280 of 2020 provide for the Insurance Industry?
This law extends the exceptions to the use of foreign currency in the insurance industry and allows for new business to be underwritten using foreign currency which was not previously permitted by law. The business that can be underwritten in foreign currency is provided as below;

(1) Notwithstanding these regulations, it shall be permissible to charge and to tender foreign currency in payment for the following:

transactions—

(a) international travel insurance;
(b) motor insurance for vehicles in transit;
(c) customs bond insurance;
(d) bank cash in transit;
(e) third party motor insurance payments for foreign registered vehicles;
(f) safari operator’s insurance;
(g) export credit insurance;
(h) importers and exporters on cost, insurance and freight;
(i) exporters’ insurance, including mining houses and tobacco merchants;
(j) special insurance policies for strategic national assets, including electricity equipment and stations, and aircraft equipment;

Thus all other insurance policies not covered by the above exceptions will remain policies underwritten and denominated in local currency.


What does this Statutory Instrument mean for the Pensions Industry?
Section 3 of the Amendment provides below;


“…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.”


This provision permits pension and provident funds to receive premiums in foreign currency. However this provision is restrictive to entities that are permitted in terms of the law to settle local contracts or pay employees in foreign currency. This provision, being restrictive in nature does not open up the whole pensions industry to foreign currency as most local employers would not have authorisation to pay remuneration in local currency.


Can Insurance Companies now Underwrite all their business in Foreign Currency?
A closer reading of the Regulations can lead one to the conclusion that all insurance and pensions business can be underwritten in foreign currency. This is on condition that the premiums are receivable from free funds. This conclusion can be drawn from section k of the provisions which provides as follows;

(k) insurance policies, where—

(i) payment of insurance premiums is made by entities or individuals with free funds; or
(ii) insurance premiums are paid offshore; or
(iii) payment of insurance premiums is made by entities or individuals otherwise authorised to trade in foreign currency;


It must be noted that this exception for allowing of premiums to be payable from free funds potentially makes all policies in Zimbabwe foreign currency denominated. However it is pertinent to note that this would only be allowable to individuals and not entities as they cannot be holder of free funds.


Currency of Contract and Currency of Settlement of Claims
The Regulations now provide a clear indication regarding the currency of insurance contracts which is dependent on the currency in which premiums have been received. Thus, claims for insurance or pensions contracts will be settled in the currency in which premiums would have been received.


Section 3 of the SI of the Amendment states that, “Where Insurers receive premiums in foreign currency in respect of a policy of insurance in terms of these regulations, obligations to policyholders arising therefrom shall also be settled in the currency in which the premiums have been received.”.

Analysis
The monetary regime in Zimbabwe needs to be comprehensively dealt with so that it provides real value for consumers of insurance and pensions services while affording insurance companies and pension funds real investment which will result in economic growth. While the permitting of insurance and pensions business in foreign currency may appear to be a welcome reprieve for many, the principles of insurance and pensions that are not covered by this new piece of legislation will continue to suffer.

[1] Also Statutory Instrument 33 and 142 of 2019.