HARARE – The Insurance and Pensions Commission has issued a new Stress Testing Framework for the insurance and pensions sector, gazetted in October 2026 under Statutory Instrument 69 of 2020 and anchored in the Zimbabwe Integrated Capital and Risk Programme, S.I. 44 of 2026.
The Framework is designed to complement the new risk-based capital regime which requires insurers to hold a market-consistent balance sheet, a Solvency Capital Requirement and a Minimum Capital Requirement, together with a ladder of supervisory intervention. While capital requirements measure resilience at a point in time, IPEC says stress testing will test how entities respond to specific adverse scenarios and whether management actions are adequate.
The Framework applies to all regulated entities including life insurers, funeral assurance, non-life insurers, reinsurers, micro-insurers and all registered pension and provident funds. Its purpose is to establish a consistent approach across subsectors, prescribe a minimum set of standardised stresses so that results are comparable and can be aggregated, and define governance, data, documentation and reporting requirements.
Under the governance provisions, the Board of Directors and senior management are responsible for the stress testing programme. Boards must approve the policy, senior management must ensure tests are appropriate to the risk profile and are performed at least annually alongside statutory annual returns, while control functions including risk management, actuarial, compliance and internal audit must execute and independently review the tests. Submissions are to be made in prescribed Excel models accompanied by an interpretive report, with a full audit trail detailing data sources, assumptions and validation checks. Scenario projections must be run over a three to five year horizon.
On methodology, IPEC requires entities to use accurate, complete and consistent data and allows both deterministic and stochastic techniques proportionate to the nature and complexity of obligations. Models must be validated annually through back-testing, sensitivity analysis and independent review. A defined three-step approach is required where the gross impact of a stress is first quantified without management actions, then realistic actions are identified, and the impact is re-quantified net of those actions. For insurers, aggregation across risk modules must use the correlation matrices prescribed in the Ninth Schedule of S.I. 44 of 2026.
The Framework sets out subsector-specific shocks in three severity tiers of mild, moderate and severe. For life, non-life and reinsurance, market risk stresses include a 25 to 35 percent fall in property values, a 40 to 50 percent fall in local listed equities plus a symmetric adjustment factor bounded at plus or minus 8 percent, a 45 to 55 percent fall for unlisted and foreign equities, currency devaluation of 30 to 65 percent, and one to two notch rating downgrades for counterparty risk.
For life underwriting risk, prescribed stresses range from a 15 to 18 percent permanent increase in mortality, a 13.8 to 24 percent permanent decrease in mortality for longevity-exposed business, a 25 to 30 percent increase in disability and morbidity inception, mass lapse events of up to 33 percent for retail and 77 percent for non-retail, and expense increases of 10 to 20 percent plus stressed inflation. Non-life and reinsurance underwriting stresses apply factor-based charges to net earned premiums, premium provisions and claims reserves, with moderate stresses raising prescribed factors by 33 percent and severe stresses by 67 percent, supplemented by event-based catastrophe scenarios such as drought, flooding and large single risk losses, and tests of reinsurance exhaustion and probable maximum loss assumptions. Reinsurers must also run accumulation catastrophe scenarios gross and net of retrocession and test the default of their largest retrocessionaires.
For defined benefit pension funds, the principal output is the funding level on both ongoing and solvency bases. Prescribed stresses include equity falls of 40 percent local and 45 percent foreign, property and biological assets down 25 percent, interest rates shifting by plus or minus 200 basis points, currency up 50 percent or down 30 percent, a longevity improvement equivalent to a two-year age deduction, inflation up 2 percent absolute, and sponsor inability to fund deficit contributions. For defined contribution funds, the central measure is the replacement ratio, being projected pension as a percentage of pre-retirement income, tested for representative cohorts 5, 15, 25 and 35 years from retirement. Stresses include similar market falls applied to growth allocations, contribution gaps such as 24 months of missed contributions, annuity pricing shifts of plus or minus 200 basis points, longevity and inflation shocks, with emphasis on sequence-of-returns risk near retirement.
In addition to subsector stresses, all entities must run four common macroeconomic scenarios reflecting the Zimbabwean operating environment. These are Scenario A involving sharp currency depreciation and elevated inflation, Scenario B covering a broad capital market downturn with widening credit spreads and counterparty defaults, Scenario C involving a major natural catastrophe or mortality and morbidity pandemic combined with market stress, and Scenario D which is a combined severe reverse scenario bringing together the most material elements of the other three.
All regulated entities must also conduct reverse stress tests to identify the scenario under which their solvency ratio would fall to 100 percent and to below the Minimum Capital Requirement, or for defined benefit funds where funding would fall below 100 percent and 75 percent, together with early warning indicators and required recovery actions.
IPEC says results will inform individual supervision and its ladder of intervention where a post-stress solvency ratio above 105 percent is considered normal, 100 to 105 percent triggers early warning, 50 to 100 percent signals risk to viability, below 50 percent indicates viability in serious doubt and below the MCR constitutes imminent insolvency. On a sector-wide basis, standardised tests will allow the Commission to benchmark entities, identify concentrations and potential contagion, and aggregate a sector view for financial stability monitoring and reporting to the Financial Sector Stability Committee and the Minister of Finance, Economic Development and Investment Promotion.
