Hyperinflation has played havoc with Zimbabwe’s Insurance sector; however, sustained policy consistency could allow for gradual recovery
Johannesburg, 27 May 2021 – GCR Ratings (“GCR”) has published a research report reviewing the Zimbabwean Insurance Sector and the impact caused by the change in functional currency and resulting hyperinflationary period. The report also provides GCR’s view on the sector risk score outlook.
Protracted economic challenges in Zimbabwe, culminating in a change of functional currency and the onset of hyperinflation, has resulted in drastically reduced insurance penetration and gross premiums in 2019 and 2020.
Due to hyperinflation, earnings came under significant pressure with the majority of insurers registering inflation adjusted net losses emanating from net monetary losses.
The long-term sector has been particularly impacted, with low consumer confidence due to previous negative experiences of hyperinflation and currency instability in 2008/9. However, GCR believe the regulatory environment is enhanced relative to 2008/9 and recent policyholder protection rules are likely to improve market confidence.
Additionally, new regulatory directives have been introduced to assist the insurance sector in coping with the current economic environment. These measures anchor the insurance sector’s potential for recovery.
GCR has maintained the insurance sector score at ‘2.75’ after a reduction from ‘3.00’ in 2020 however, the sector score could come under further pressure over the medium-term if earnings do not recover in line with expectations.
GCR will periodically provide insights on key sectors/industries across different territories in which various rated entities are domiciled, encompassing changes in the operating environment, performance trends and its view of the impact of an evolution in market dynamics on the credit risk profiles of rated entities in selected industries.
GCR Ratings Scales, Symbols & Definitions, May 2019
GCR’s Country Risk Score Report, March 2021
GCR Insurance Sector Risk Scores, April 2021
CREDIT RATINGS ISSUED AND RESEARCH PUBLICATIONS PUBLISHED BY GCR, ARE GCR’S OPINIONS, AS AT THE DATE OF ISSUE OR PUBLICATION THEREOF, OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. GCR DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL AND/OR FINANCIAL OBLIGATIONS AS THEY BECOME DUE. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: FRAUD, MARKET LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND GCR’S OPINIONS INCLUDED IN GCR’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND GCR’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND GCR’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL OR HOLD PARTICULAR SECURITIES. NEITHER GCR’S CREDIT RATINGS, NOR ITS PUBLICATIONS, COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. GCR ISSUES ITS CREDIT RATINGS AND PUBLISHES GCR’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING OR SALE.
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