First Mutual Life Assurance Company is facing a significant financial burden after a forensic audit revealed substantial losses incurred by policyholders due to non-compliance with regulations. The Insurance and Pensions Commission (IPEC) has ordered the company to pay approximately US$53 million and $209 million to compensate affected policyholders, a decision that First Mutual is currently appealing.
The audit uncovered various instances of non-compliance, including the failure to separate accounts for different business units, misuse of management fees, diversion of policyholder funds to fund funeral services, absence of independent directors, and imprudent investment decisions such as overcommitting funds to Rainbow Tourism Group in anticipation of the 2010 FIFA World Cup.
First Mutual is contesting the IPEC’s directive, citing procedural and substantive irregularities in the issuance of the corrective order.
ALSO READ: More Details Emerge In Mutumbuka’s House Saga
They argue that IPEC lacked jurisdiction, and the involvement of the Finance, Economic Development, and Investment Promotion Minister, Professor Mthuli Ncube, in mandating the corrective measures was unauthorized.
The forensic audit, conducted by BDO Chartered Accountants Zimbabwe, revealed further anomalies, such as shareholder payments being drawn from policyholder accounts. This practice resulted in potential financial prejudice to policyholders, particularly in employment benefit schemes, where clients faced a potential loss of US$31 million due to overdrawing.
Additionally, delays in implementing corrective measures on certain investments, notably Tristar, led to substantial losses for policyholders. The audit highlighted a lack of transparency in the sale of Tristar shares, with the selling price not reflecting fair value, resulting in a loss of US$795,891.
Further scrutiny revealed direct payments from policyholder accounts to support operations of First Mutual Funeral Services, and imprudent investments, such as a stake in Rainbow Tourism Group, which resulted in significant losses for policyholders.
