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Local currency value worries Fidelity Life

Local currency value worries Fidelity Life

By Edward Mukaro

Zimbabwe Stock Exchange-listed insurance concern, Fidelity Life has resorted to adopting an investment strategy that prioritises asset preservation in light of the depreciation and loss of value of the local currency, and this is despite the group posting an operating profit of ZWL302.4 million compared to the prior year’s ZWL211.2 million.

The group’s adaptation of an investment strategy that prioritises its assets comes on the backdrop of a period where the local unit (ZWL) was relatively stable on the Foreign Currency Auction System (FCAS) but was in free-fall on the parallel market. The depreciation gathered momentum in September 2021 leading to a wave of price increases that threatened the relative price stability the country had enjoyed since the second half of 2020.

“Disparity between the official exchange rate and the parallel market rate is presenting a challenge when it comes to conversion of United States dollar-denominated revenue to Zimbabwe dollar as well as the determination of Zimbabwe dollar prices for properties,” said the group.

However, the group was quick to note and applaud the central bank for a timeous intervention.

“The Central Bank responded with a raft of measures aimed at curbing foreign currency trading on the parallel market and strengthening operations of the FCAS.”

The Group’s inflation-adjusted total core revenue for the nine months under review increased by 121% up from ZWL506.8 million in the prior period to ZWL1,121.4 million.

The group’s life assurance businesses remain the cornerstone of the Group, contributing 85% to the Group core revenue. Revenue growth was achieved on the back of new business acquired, and premium reviews in line with economic developments.

In addition, the group recorded steady growth in United States dollar-denominated revenue.

Investment income for the nine months declined by 87% due to depressed property prices and this explains the decline in total revenue. The use of the stable official exchange rate in converting United States dollar fair market values for properties to Zimbabwe dollar resulted in understatement of property values and depressed fair value gains.

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