FMHL disputes IPEC order, BDO findings

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First Mutual Holdings Limited (FMHL) says it disagrees with the findings in the BDO Chartered Accountants (BDO) report and the Insurance and Pensions Commission (IPEC) corrective order on asset separation.

The financial services group argues its submissions were not properly considered.

In 2022, IPEC undertook a forensic investigation on First Mutual Life Assurance Company, a subsidiary of First Mutual Holdings Limited, following the asset separation exercise initiated by IPEC.

In January this year, FML received a corrective order from IPEC, which is based on the findings of the forensic auditor, BDO, and directed FML’s shareholders to pay significant sums in Zimbabwe dollars and US dollars to the policyholders in respect of perceived actual and potential losses, as recommended by BDO.

“Interpretations of fact, accounting standards, legal and actuarial principles, as well as currency conversion issues, are in dispute.

“FML is seeking input from independent third-party professionals in a bid to resolve the areas of disagreement.

“Accordingly, the boards of both FML and FMHL are exploring all avenues to find a way forward,” the group said in a statement.

It added that, meanwhile, to protect FML’s legal rights, an application for review of the corrective order has been filed with the High Court.

“Notwithstanding the institution of legal proceedings, which has become unavoidable to safeguard FML’s rights, both FML and FMHL will continue to work with the regulator and with the parent ministry to resolve the issues.

“The group remains committed to the service and protection of its policyholders and balancing the interests of all stakeholders,” reads part of the statement.

According to IPEC, the asset separation exercise was necessitated by the notable non-compliance by several insurance companies against the afore-mentioned legal requirements, which had the potential to prejudice policyholders in favor of shareholders.

Concerning FML, the assessment done by IPEC was to verify the extent to which FML complied with the provisions on asset separation, which the regulator said warranted an in-depth investigation.

The objective of the asset separation exercise is to enforce compliance with the requirements of the new industry legal provisions.

The exercise was done to identify assets that may have been misappropriated from policyholders to shareholders or vice versa, quantify the assets that may have been misallocated and apportion them to their rightful owners, and enhance compliance with the legal requirements for asset separation as a way of improving good governance in the insurance and pension sectors.

In a trading update for the nine months to September 30, 2023, FMHL insurance contract revenue (ICR) for the period amounted to $413,6 billion in inflation-adjusted terms, which increased by 103 percent compared to the same period in the prior year and $286,3 billion in historical terms, representing growth of 919 percent on the prior year.

“The year-on-year growth in the ICR was driven by the continued revaluation of insurance policy values to match inflation and exchange rate movements to ensure adequate cover for clients as well as improve product relevance.

“Additionally, clients have continued migrating to USD-denominated policies for value preservation in case the insured event occurs,” the group said.

Total US dollar premiums stood at $70,2 million for the group, constituting 71 percent of total insurance revenue from 62 percent in the prior year. – Herald