CHAIRMAN’S STATEMENT
The Economy
The Zimbabwean economy continued to show resilience despite the debilitating effects of the ongoing COVID-19 global pandemic. COVID-19 had the effect of curtailing normal business operations and social activity, leading to reduced overall economic activity.
The intervention by government significantly curtailed COVID-19 transmission rates. Notwithstanding the relative success of handling the first wave of COVID-19, the country’s economic performance remained largely volatile with the year-on-year inflation peaking at 837% in the month of July 2020 before easing to 348% in December 2020. The introduction of the foreign currency auction system and the return of the United States dollar as a transacting currency helped to stabilise the local currency. The auction system eased foreign currency challenges within the economy.
The Insurance and Pensions Industry
The regulator, the Insurance and Pensions Commissions (IPEC), issued the Final Guidance Paper on Adjusting Insurance and Pension Values in response to the 2019 Currency Reforms (The Final Guidance Paper) on 13 March 2020. The Final Guidance Paper set 31 December 2018 as the first measurement date for the purposes of determining currency linked revaluation gains for distribution to qualifying policyholders. The Final Guidance Paper provided comprehensive guidance on revaluation processes required to be undertaken by regulated entities such as First Mutual Life to ensure equitable sharing of revaluation gains to different generations of pensioners and policyholders. Statutory Instrument (SI) 69 of 2020 gave legal effect to the relevant circulars issued by IPEC.
Financial Performance
On an inflation adjusted basis, the Group achieved gross premiums of ZWL519,468 million which decreased by 39% from ZWL845,210 million in 2019. The Group incurred total claims amounting to ZWL132,373 million which was a 54% decrease from ZWL287,042 million incurred in 2019. Commission expenses of ZWL18,974 million decreased by 35% from ZWL29,328 million in 2019.
Administration expenses for the year of ZWL624,887 million increased by 3% from ZWL605,286 in 2019. The values for income, claims, commission and administration expenses were generally higher than those for 2019 due to the impact of inflation.
The Company`s performance on an inflation adjusted basis in relation to gross premiums, claims and commissions performance for the year ended 31 December 2020 tracked the performance of the Group. Administration expenses for the year ended 31 December 2020 amounting to ZWL404,766 million were 8% down from ZWL442,265 million in 2019. This was attributable to the adjustment to the historical numbers for the impact of inflation.
On a historical cost basis, the Company achieved gross premiums of ZWL342,527 million which was 434% higher relative to the ZWL64,131 million achieved in 2019. The increase was mainly due to positive performance of Group Life Assurance premiums. The Group incurred total claims amounting to ZWL96,561 million which was a 337% increase from ZWL22,117 million incurred in 2019.
The increase was largely attributable to the growth in annuity payments to pensioners. Commission expenses of ZWL13,643 million increased by 481% from ZWL2,348 million in 2019 due to the increases in premiums rates for underlying policies coupled with improved acquisition of new business. Administration expenses amounting to ZWL435,716 million were 661% up from ZWL57,230 million in 2019. The increase was attributable to the general increase in prices of goods and services in 2020.
The historical cost performance of the company also tracked the performance of the Group in terms of gross premiums, claims and commissions. Administration expenses amounting to ZWL299,002 million were 630% up from ZWL40,979 million in 2019. This was again attributable to the general increase in the prices of goods and services in 2020.
Impact of Currency Revaluation
The implementation of the requirements of the Final Guidance Paper resulted in Funeral Cash Plan policies being made paid-up and First Mutual Life shareholders concurrently being required to make a transfer of ZWL188 million into a fund to support Funeral Cash Plan policyholder liabilities.
Impact of COVID-19
The COVID-19 pandemic is still unfolding and therefore requires continuous monitoring and assessment. There has been global disruption in supply chains and increases in the cost of doing business due to the pandemic. The business was not spared from the disruptions caused by the COVID-19 pandemic. The effects included additional costs of doing business, suspension of business channels that need physical interaction, changes in work routines and affordability challenges for clients because of restricted trading. The Group will retain resources to respond as necessary to the impact of the pandemic. We express our sympathy to the victims of the pandemic and their families. First Mutual Life is doing everything it can to safeguard the health of its clients, staff members and their families by adhering to the safety measures as pronounced by the Ministry of Health and Child Care.
Sustainability
Despite the severe constraints on operations and business activities imposed by the COVID-19 pandemic, implementation of sustainability principles and practices ensured the business was able to deliver services to its policyholders and investors following the designation of the insurance industry by the government as essential service providers.
Additional measures taken to ensure sustainability included prudent cost management, targeting of new, mostly digitally driven, market segments and adaptation of most business processes and practices through an expanded digitisation strategy. First Mutual Life remains committed to upholding sustainability principles in all business operations.
Outlook
Modest economic recovery is projected in 2021 if effective measures are taken to stabilise foreign currency exchange rates and avoid excessive money supply growth. Currently, the biggest risks to economic recovery lie in how the Government handles the COVID-19 pandemic and maintains or improves the foreign currency exchange rate stability which will ultimately influence the inflation outturn. The implementation of the National Development Strategy 1 which was launched in 2020 is in line with Vision 2030 and is expected to generate new areas of growth where economic opportunities for the insurance industry can be exploited. The government has continued to implement measures to stabilise the local currency and enforce market discipline. The Group is confident of the country’s medium-term economic prospects and will continue to invest in its core business to not only preserve but grow its financial position into the future. An economy-wide focus towards investing in new capabilities, including digital platforms, is expected to further enhance opportunities for the insurance industry’s recovery in the immediate future and to further sustain growth in the long term.
Acknowledgements
The Board appreciates the support from all stakeholders during the year, especially the support from our valued customers. I would also like to the acknowledge commitment of all employees and management of First Mutual Life against the background of a very difficult operating environment.
Samuel V Rushwaya
Chairman
30 July 2021
DECLARATION BY CHIEF FINANCE OFFICER
The abridged audited financial statements, which should be read in conjunction with the complete set of financial statements for the year ended 31 December 2020, were prepared under the supervision of the Chief Finance Officer, Peddy H Chigunduru, a member of the Institute of Chartered Accountants of Zimbabwe, and registered with Public Accountants and Auditors Board, as a Registered Public Accountant, certificate number 04326.
Peddy H Chigunduru
Chief Finance Officer
30 July 2021
Capital Adequacy Assessment
International Financial Reporting Standards (IFRS) Basis
The Group had IFRS capital of ZWL1.8 billion (FY2019: ZWL196 million) at 31 December 2020 against the minimum capital required of ZWL75 million giving a surplus of ZWL1.7 billion (FY2019: ZWL121 million). The Group capital coverage as at 31 December was x24 (FY2019: x2.62).
SI 95 of 2017 Basis
The Group had capital of ZWL143 million (FY2019: ZWL75 million) as at 31 December 2020 against the minimum capital required of ZWL75 million giving a surplus of ZWL68 million (FY2019: ZWL10 million). The Group capital coverage as at 31 December was x1.91 (FY2019: x1.14).
