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MEMORANDUM TO CABINET COMMITTEE ON LEGISLATION
PRINCIPLES FOR THE PROPOSED AMENDMENTS TO THE
INSURANCE AND PENSION LEGISLATION
Introduction
1. This Memorandum outlines principles that will underpin review of
legislation for the insurance and occupational pension schemes,
notably, the Insurance Act [Chapter !"#$%, the &ension ' &rovident
(unds Act [Chapter !"#)% and the Insurance ' &ensions
Commission Act [Chapter !"1%. The principles are also proposing
a few amendments to the *ational +ocial +ecurity Authority[Chapter 1$"#!% and the Medical +ervices Act [Chapter 1"1-%.
. The proposed review of the insurance ' pension legislation has
been necessitated by the need to address identified deficiencies in
the current legislation, as well as the need to align imbabwe/s
legislation with international best practices.
-. Most of the deficiencies were identified through the #1
assessment done by e0perts from the +AC +ecretariat on the
level of compliance of the country/s legislation to the industry
standards set by the International Association of Insurance
+upervisors 2IAI+3 and the International 4rganisation of &ension
(unds 2I4&+3. Therefore, bench mar5ing imbabwe/s legislation to
thecore principles of insurance and pension funds regulation set by
these international standard setting bodies/forms the basis of the
proposed amendments.
!. Incorporating these international standards in the country/s
insurance and pension legislation will ensure a sound regulatory
and supervisory framewor5. The ade6uacy of the regulatory
framewor5 is a re6uisite for maintaining fair, safe and stable
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insurance and pension sectors for the benefit and protection of the
interests of policyholders, as well as contributing to the stability of
the financial system. As such, the proposed review is being
pursued in the spirit of continuously updating the insurance and
pension legislation in line with dynamic global and regional financial
trends.
Justification for t! Pro"os!d A#!nd#!nts
. The dynamic nature of the financial sector compels regulators of
the financial sector to 5eep pace with developments in the global
financial mar5ets arising mainly from technological innovation and
the development of new financial instruments by financialinstitutions. (inancial sector regulators should therefore, constantly
monitor developments in the sector and align their legislation to
mar5et developments.
7. Through the proposed amendments, 8overnment strives to create
a robust andinternationally respected insurance and pension
industry that is a vehicle for ris5 transfer for the commercial,
industrial and personal insurance covers, playing its national role offinancial security to the public and financial support to the fiscus.
$. The legislative review will focus on such issues li5e, corporate
governance, legal ' regulatory framewor5 and prudential
standards. +pecific areas that the review will focus on include9
empowering the Insurance ' &ensions Commission to effectively
supervise the sector, addressing corporate governance issues, anti:
money laundering and countering the financing of terrorism, groupwide supervision of financial conglomerates, regulation of medical
aid schemes and cooperation among financial sector regulators.
;. +pecific areas for the pension sector include enhancing protection
of policy holders, rights of policy holders, allowing offshore
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investments by pension funds and insurance companies, regulation
of insurance and pension aspects of the *ational +ocial +ecurity
Authority 2*++A3, valuation of pension assets, and I&
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Commissionerin terms of the e0isting Acts prior to the formation of
the I&
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challenges in the ban5ing sector, similar changes need to be
effected in the insurance and pension industry.
1;. The re6uirement of Insurance Core &rinciple 2IC&3 $ is that I&
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-. In this regard, there is need to amend the I&
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therefore need for a statutory re6uirement to put in place =oard
Committees which should at a minimum include the Technical
Committee such as Audit, BegalIT 8overnance andBicencing
Committees among others.
Mana(!#!nt S)i**s
$. I&
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-#. In addition, the re6uirement for fit and probity test is not currently
applicable to shareholders, actuaries, auditors, asset managers,
rating agencies and other 5ey service providers. (urther, there is no
re6uirement obliging the insurer to regularly review and inform the
supervisor of changes in the above appointments. Thus, detailed
vetting of the actuaries and auditors is re6uired to chec5 whether
they are e0perienced enough for the comple0ity of the insurer/s
ris5s and business.
-1. The above proposals to empower I&ected to integrity
and competence tests board members, senior management,
actuaries, trustees, fund administrators, auditors and significant
shareholders of an insurer, bro5ing firm and pension funds to be
and remain suitable to fulfil their respective roles
-. To this end, it is proposed that the Insurance Act and the &ension
and &rovident (unds Act be amended to obligeregulated entities tosee5 I&
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--. It is proposed that the Insurance Act and the &ension and
&rovident (unds Act be amended to re6uire insurance companies
and pension funds to haveor enlist the services of auditors and
actuaries unless an e0emption has been granted in writing by the
Commission. Fualifications and e0perience of auditors, actuaries
and any other 5ey service providers should be thoroughly
investigated according to best practices to see whether they are fit
and proper for the nature and scale of the business of the insurer.
Sar!o*din( R!strictions-!. The Insurance Act does not empower I&
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legislation 2egulations3. @here there is a shareholder who wants
to ac6uire significant shareholding which is above the prescribed
thresholds, such a transaction can only be granted on e0ceptional
basis and in consultation with the Minister.
Conso*idat!d Su"!r%ision
-). In the recent past, there has been blaring distinction between
ban5ing and non:ban5ing institutions owing to the growth of holding
companies 2commonly 5nown as financial conglomerates3. These
conglomerates are into various lines of business that include
commercial ban5ing, mortgage lending, insurance, securities,
microfinance, financial advisory, asset management, and property
development among others.!#. The Insurance Act does not provide for consolidated supervision
ofthese conglomerates. In the absence of consolidated supervision,
it is becoming increasingly difficult for financial sector regulators to
coordinate their activities in supervising conglomerate organisations
to curb regulatory arbitrage. This has been e0acerbated by the silo
regulatory model for the imbabwean financial sector, where there
are three regulators for ban5ing 2eserve ban53, insurance and
pensions 2I&
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non:regulated entities 2including parent companies, their
subsidiary companies and companies substantially controlled or
managed by entities within the group39 and
special purpose entities.
!. In line with the ongoing review to the =an5ing Act, the I&
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leaving employment. Although employment contracts may be
assumed to deal with this issue, there is need to be more e0plicit in
legislation as it is an important issue.
!$. Eowever, it is a re6uirement of the Insurance Core &rinciplesthat I&
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!). In light of the above challenges facing the medical aid schemes
in the region, +AC Ministers responsible for (inance and
Investment made a decision at their meeting of -# July ##) that
these institutions should rigorously be supervised under the
purview of insurance and pension regulators. The decision was
adopted by +AC as the activities of medical aid societies or
schemes constitute insurance business. This +AC position is
being pursued in the spirit of harmonisation of the regulatory
framewor5 for non:ban5ing financial institutions in fulfillment of the
+AC (inance and Investment &rotocol 2(I&3.
#. To this end, it is proposed that medical aid schemes which are
currently registered by the Ministry of Eealth' Child Care be
supervised by the I&
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ensuring that the public is protected against ma: practice by these
institutions.
Pro"os!d R!(u*ation of NSSA
. *++A operates a national pension scheme which is not
regulated at the moment, though the institution gets policy direction
from the Ministry of Babour. There is a possibility that the
unregulated social security schemes could create regulatory
arbitrage which could be damaging to the pensions industry.
-. It is proposed that the *ational +ocial +ecurity Authority be
brought under the purview of I&
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Act do not have provisions for corrective action in the form of
curatorship by I&
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Insurance Act be amended to ensure that I&
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A""oint#!nt of Ins"!ctors
7. The current Insurance Act provides for the appointment of only
individuals as inspectors. This limits the scope of wor5 of such
bodies as auditors, and actuaries who may not be engaged as
inspectors. The proposed amendments are therefore meant to
e0tend the appointment of inspectors to include corporates or
associations.
Pro%ision R!*atin( to Association of Und!r$rit!rs77. Currently the Insurance Act does not provide for the registration
of Associations as insurers. Bloyds nderwriters 2an Association3
was operating in imbabwe under some 5ind of gentlemen/s
agreement without formal registration. +ince Bloyds is not the only
organisation that may desire to operate in imbabwe/s mar5et as
an Association, it is recommended that the Insurance Act be
amended to provide for registration of Associations as re:insurers.
Off!nc!s co##itt!d -' or $it unr!(ist!r!d "!rsonsThe current Act is discriminatory in dealing with unregistered entities
doing business with registered persons. It penalises registeredcompanies dealing with unregistered entities. The proposal is to
penalise both the registered persons and unregistered entities
involved in the infringement of the insurance law.Co##ission #a'
Pr!scri-! Mini#u# Pr!#iu#s7$. I&
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R!#ission of Pr!#iu#s
7;. In addition, some bro5ing firms collecting premiums on behalf of
insurers fail to remit premiums timely, resulting in the insurer failing
to pay claims when they arise. To counteract this, the amendments
are proposing to empower I&
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There are no actuarial valuation guidelines and approval of
valuators.
$1. udicial system might wor5 well, pension rights
are not defined well enough for members to have enforceable
pension rights. +ome pension cases have been heard in
imbabwean courts but this has not helped define pension rights.
To this end, the proposed amendments see5 to address these
deficiencies.
Fund M!#-!rs Prot!ction$. 4ne of the ma>or wea5nesses of the &ension and &rovident
(unds Act is that pension fund member/s access to full contributionrecord is not guaranteed. This is a serious wea5ness in a defined
contribution fund. In light of this deficiency, there is need to amend
the &ension and &rovident (unds Act to address the wea5ness of
non:disclosure.
S!"aration of Duti!s
$-. &ension entities should be re6uired to put in place internalcontrol arrangements that allow for segregation of duties. (or
e0ample, currently, there is no clear separation between those
responsible for investment and those responsible for settlement
and boo5:5eeping. Additionally, there is no separation between
those initiating investments and those implementing them.
P!nsion Funds Offsor! In%!st#!nts
$!. Investment abroad by pension funds should not be prohibitedand, among other ris5s, should ta5e into account the currency
matching needs between pension assets and liabilities.Currently,
the Act does not permit investments abroad, hence the proposal
toempower I&
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sub>ect to compliance with re6uired investment thresholds in
prescribed assets.
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Pu-*ic Disc*osur!
$;. I&
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;. According to the (inancial Action Tas5 (orce 2(AT(3
re6uirements, countries should have AMB?C(T (ramewor5s to
combat the twin evils of money laundering and terrorism financing.
In this conte0t, the insurance regulator is a competent authority with
the responsibility of ensuring that its regulated entities comply with
AMB?C(T re6uirements.
;-. In this regard, proposed amendments to the Insurance and I&urisdiction where it operates9 and
potential impediments to a coordinated solution.
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Count!rin( Fraud in Insuranc! and P!nsion Institutions;$. The deficiency in the I&
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)1. I therefore submit the principles on the proposed amendments to
the Insurance and &ensions Commission Act [Chapter !"1%, the
Insurance Act [Chapter !"#$% and the &ension and &rovident
(unds Act [Chapter !"#)% for consideration by the Cabinet
Committeeon Begislation. All the proposed amendments reflect best
practices in insurance and pension regulation as developed by the
International Association of Insurance +upervisors 2IAI+3 and the
International 4rganisation of &ension +upervisors 2I4&+3.
Eon. &.A. Chinamasa, M&MINISTER OF FINANCE AND ECONOMIC DE/ELOPMENT
! July #1!
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