Financial Services (Investment Management of Life Insurers and Pension Funds) Directive 2025

GOVERNMENT NOTICE NO. 93 FINANCIAL SERVICES ACT (CAP. 44:05) FINANCIAL SERVICES (INVESTMENT MANAGEMENT OF LIFE INSURERS AND PENSION FUNDS) DIRECTIVE, 2025 IN EXERCISE of the powers conferred by section 34 of the Financial Services Act, I, DR. MACDONALD MAFUTA MWALE, Registrar of Financial Institutions, issue the following Directive—

1. This Directive may be cited as the Financial Services (Investment Management of Life Insurers and Pension Funds) Directive, 2025.
2. This Directive shall apply to life insurers and pension funds.
3. In this Directive, unless the context otherwise requires— “arranger” means a licensed stockbroker, dealer, investment adviser and portfolio manager engaged to arrange a private placement of securities; “asset category” means a class of assets specified under paragraph 11; “board” means the board of directors of a life insurer and the board of trustees of a pension fund; “collective investment scheme” has the meaning ascribed thereto under the Securities Act; “counterparty group” means two or more related entities where a financial difficulty of one of the entities may affect the financial soundness of the other related entity; “credit rating agency” means a credit rating agency listed in the Fifth Schedule; “exposure” in relation to a counterparty or counterparty group means the amount at risk arising through the extension of credit or funds, including investment, credit facility, participation, guarantee, acceptance, reinsurance, and other contingent liability arising in the normal course of business; “infrastructure asset” means a physical asset and facility, system and network that provides or supports the provision of an essential public service; “infrastructure corporate entity” means an entity or corporate group which— (a) during its most recent financial year derived the substantial majority of its revenue from owning, financing, developing or operating an infrastructure asset; or (b) according to its financial proposal will derive the substantial majority of its revenue from owning, financing, developing or operating an infrastructure asset; and (c) meets criteria set out in the Fourth Schedule; 561 The Malawi Gazette Supplement, dated 12th September, 2025, containing Regulations, Rules, etc (No. 30A) Citation Application Interpretation Cap. 46:06

“infrastructure project entity” means an entity which— (a) is not permitted to perform any other function other than owning, financing, developing or operating an infrastructure asset, where the primary source of payment to a debt provider and equity investor is income generated by the asset; and (b) meets the criteria set out in the Third Schedule; “investment policy” means— (a) in the case of a life insurer, a policy formulated in accordance with section 56 of the Insurance Act; and (b) in the case of a pension fund, a policy formulated in accordance with section 54 of the Pension Act; “insured funds” means any insurance product offered by a life insurer that, at a minimum, guarantees that the benefit to be paid will not be less than the sum of capital contributions or premiums paid, investment returns and vested bonuses; “private offering” has the meaning ascribed thereto under the Companies Act; “private placement” means private offering; “professional valuer” means a valuer registered as such under the Property Valuation Act; “programmed withdrawal” has the meaning ascribed thereto under the Pension Act; “qualifying infrastructure asset” means a debt or equity security issued by— (a) an infrastructure project entity that meets the criteria specified in the Third Schedule; or (b) an infrastructure corporate entity that meets the criteria specified in the Fourth Schedule. “state-owned enterprise” has the meaning ascribed thereto under the Public Finance Management Act; and “subscription agreement” means an agreement, in writing, signed between an investor and an issuer of a financial instrument. 4. The objectives of this Directive are to— (a) promote prudent management of investments of life insurers and pension funds; (b) promote diversification of investments by life insurers and pension funds; and (c) facilitate investment in qualifying infrastructure assets by life insurers and pension funds. 5.—(1) A board shall develop an investment policy, which shall be the principal instrument governing investment by the insurer or pension fund. 562 12th September, 2025 No. 6 of 2025 No. 6 of 2023 Cap. 46:03 No. 26 of 2024 No. 6 of 2023 No. 4 of 2022 Objectives of Directive Board to develop investment policy

(2) The investment policy shall be consistent with— (a) in the case of a life insurer, the Insurance Act; (b) in the case of a pension fund, the Pension Act; and (c) this Directive and any other guidelines issued by the Registrar. (3) The investment policy shall, at a minimum, include the following— (a) overall risk appetite and tolerance levels of the life insurer or pension fund; (b) investment selection criteria, standards and other parameters, including asset allocation mix across investment categories; (c) procedure for analysing and evaluating investment and carrying out an investment transaction; (d) procedure for monitoring and maintaining investment within the target range and limit; (e) procedure for identifying, measuring and mitigating investment risks; (f) approach to managing the liquidity of investments; (g) roles and responsibilities of persons involved in the development, implementation, and control of the investment policy; and (h) procedures for appointment of an investment manager and other service providers related to investment. (4) Where a life insurer maintains more than one life insurance fund, the investment policy shall identify differences in relation to the investment of assets of each fund. (5) Where a pension fund provides a programmed withdrawal, the board shall develop a separate investment policy for assets backing the programmed withdrawal. 6. A Board shall, in developing the investment policy, among other factors consider— (a) the stakeholder profile of the insurer or pension fund, including projected membership growth or decline, age and occupational profile of policyholders or members and any other reasonable expectation; (b) the risk factors relevant to the life insurer or pension fund; (c) the liquidity needs of the life insurer or pension fund and the matching of assets and liabilities; (d) the need to avoid undue concentration of investments in relation to, among others, asset category, economic sector, industry, counterparty or geographic region; (e) the level of capital adequacy and solvency of the life insurer or the level of funding and solvency, where applicable, of the pension fund; (f) the tax position of the life insurer or pension fund; (g) the size, stability and growth rate, in terms of assets under 12th September, 2025 563 No. 6 of 2025 No. 6 of 2023 Considera￾tions to inform investment policy

management of the life insurer or pension fund, and any other factors affecting the financial position of the insurer or pension fund; (h) any relevant finding regarding the circumstances of the life insurer or pension fund by an expert or adviser; (i) environmental, social and governance considerations relevant to investments of the life insurer or pension fund; (j) the broader state of the financial market and the economy; (k) advice of an actuary, a portfolio manager or an investment adviser; (l) in the case of a life insurer, the nature of the liabilities and product portfolio of the life insurer; and (m) in the case of a pension fund, the benefit structure and basic retirement income objectives of the pension fund. 7. The board shall review the investment policy in line with macro￾economic developments, at least once in every three years. 8.—(1) Where a life insurer or pension fund appoints an investment manager, the life insurer or pension fund shall enter into a written investment management agreement with the manager. (2) An investment management agreement shall, among other things, clearly set out— (a) terms under which the investment manager is engaged; (b) fees payable to the investment manager; (c) the obligations of each of the parties to the agreement; (d) performance measurement, evaluation, reporting, benchmarks and performance indicators for the investment manager; (e) reporting obligations of the investment manager, including reporting period and content of reports; (f) ownership and right of access to books and records relevant to the investment management agreement; (g) process for resolving disputes between the parties; (h) right of a party to be indemnified by the other party; (i) right of a party to terminate the agreement; (j) obligations of each party on termination of the agreement; and (k) obligation of investment manager to disclose a conflict of interest that arises in the course of implementing the agreement. 9.—(1) A life insurer and pension fund shall value its investments in accordance with International Financial Reporting Standards or as may be guided by the Institute of Chartered Accountants in Malawi. (2) A life insurer and pension fund shall engage a— 564 12th September, 2025 Periodic review of investment policy Investment management agreement Valuation of investments

(a) professional valuer to value a real estate; and (b) a suitably qualified professional to value an unlisted security. (3) A professional valuer who values an investment under subparagraph (2) shall specify the methodology used in valuing the investment and ensure consistency in the valuation methodology. (4) A life insurer and pension fund shall cause— (a) an unlisted security to be valued every twelve months; and (b) a real estate to be valued every two years. (5) For purposes of this paragraph “suitably qualified professional” means a person who possesses expertise in financial analysis and valuation methodologies and is duly recognized by a professional body to perform the required valuation. 10.—(1) A life insurer and pension fund shall, in applying the investment limits prescribed in this Directive, use the look-through principle to assess investment in a collective investment scheme or a trust fund. (2) Where the look-through principle cannot be applied, the insurer and pension fund shall apply investment limits on the basis of the target underlying asset allocation of the collective investment scheme or trust fund: Provided that— (a) the target allocation is available to the insurer or pension fund at the level of granularity necessary for applying all relevant limits; and (b) the underlying asset is managed strictly according to the target allocation. (3) For the purposes of calculating investment limits, the insurer and pension fund may use asset groupings: Provided the asset groupings— (a) are applied in a prudent manner; and (b) do not apply to more than twenty percent of the total value of the assets of the life insurer or pension fund. 11.—(1) A life insurer or pension fund may invest in— (a) deposits with a bank or any other deposit taking financial institution; (b) debt securities, including— (i) money market instruments issued by a bank; (ii) bonds, non-convertible debentures and other evidence of indebtedness issued or fully guaranteed by the Malawi Government or the Reserve Bank of Malawi; (iii) bonds, non-convertible debenture and other evidence of indebtedness issued by a state-owned enterprise in Malawi: Provided that where the security is not fully guaranteed by the 12th September, 2025 565 Assessment of investment Authorized investment

Malawi Government or the Reserve Bank of Malawi, the security is listed on a licensed exchange; (iv) bonds, non-convertible debentures and other evidence of indebtedness issued by a company registered in Malawi; and (v) bonds, non-convertible debentures and other evidence of indebtedness that are qualifying infrastructure assets; (c) equity securities, including— (i) ordinary shares, preference shares and convertible debentures issued by a state-owned enterprise in Malawi: Provided that where the security is not fully guaranteed by the Malawi Government or the Reserve Bank of Malawi, the security is listed on a licensed exchange; (ii) ordinary shares, preference shares and convertible debentures issued by a company registered in Malawi; or (iii) ordinary shares, preference shares and convertible debentures that are qualifying infrastructure assets; (d) property-related investments, including— (i) mortgages on real estate in Malawi, if the amount of the loan does not exceed— (A) seventy-five per cent of the value of the real estate; or (B) ninety per cent of the value of the real estate, where the portion of the loan in excess of seventy-five per cent is guaranteed by an agency of, or directly by the Malawi Government, or an insurer licensed to engage in that class of insurance business; (ii) mortgage-backed securities issued by a bank; (iii) real estate in Malawi held for the purpose of leasing out or sale: Provided that the estate is managed by a professional property manager or, in the case of an estate under construction, the construction project is being managed by a professional property developer; (iv) real estate in Malawi required by the life insurer or pension fund for its use or occupation or reasonably required for the natural expansion of its business; and (v) real estate in Malawi acquired by foreclosure of a mortgage, where the mortgage qualified as an investment under this Directive; (e) derivatives that are in line with International Swaps and Derivatives Association master agreements and are traded on a licensed exchange in Malawi; (f) policy loans by the life insurer to its policyholders: Provided that the amount of the loans does not exceed the cash surrender value of the policies; (g) insured funds offered by a life insurer licensed in Malawi; 566 12th September, 2025

(h) offshore investments, which shall be limited to— (i) deposits with financial institutions in COMESA, SADC and OECD countries; (ii) securities issued by governments in COMESA, SADC and OECD countries; (iii) securities issued by multilateral development organisations and international financial institutions; (iv) securities issued in COMESA, SADC and OECD countries and listed on an exchange that is a member of the World Federation of Exchanges, subject to such conditions as may be imposed by the Registrar; and (v) collective investment schemes licensed by competent regulatory authorities in COMESA, SADC or OECD countries; and (i) other assets as may be approved by the Registrar, on written application of the life insurer or pension fund. (2) A life insurer or pension fund shall not invest in any asset category not specified under subparagraph (1). (3) Investments under subparagraph (1) shall comply with the limits prescribed under subparagraph 15. 12. A life insurer or pension fund may invest in an asset either directly or through a collective investment scheme or trust fund. 13. A life insurer or pension fund may invest in derivatives only for purposes of hedging and the exposure to the underlying assets of the derivatives shall be limited to the corresponding assets held by the life insurer or the pension fund. 14.—(1) A life insurer or pension fund shall not invest in a debt security on which payment of interest or principal is in default. (2) Where a life insurer or pension fund investments in a company and an arrangement is made for re-organization or liquidation of the company, or amalgamation of the company with another company, the life insurer or the pension fund may accept debt or equity security in exchange for the investment. (3) Where the exchange under subparagraph (2) results in the limits set out in the First Schedule being exceeded, the life insurer or the pension fund shall, within thirty days of the transaction notify the breach in writing to the Registrar. (4) The notification under subparagraph (3) shall be accompanied by a plan for rebalancing the concerned portfolio. 15.—(1) A life insurer or pension fund shall not invest in any asset category in excess of the limits prescribed in the First Schedule. 12th September, 2025 567 Investment through collective investment schemes Derivatives to be arranged for hedging Acceptance of indebtedness Investment limits

(2) Where a life insurer or pension fund exceeds a prescribed investment limit due to an increase or decrease in the market price of an asset or structural change or, in the case of a pension fund, as a result of transfer of an asset from another pension fund, the excess shall not be considered as a breach of the limit. (3) The life insurer or pension fund that exceeds an investment limit prescribed under subparagraph (1) shall— (a) not make any further investment in that asset category; and (b) within thirty days of the breach, submit to the Registrar a plan for rebalancing the concerned portfolio. (4) Where it is the public interest to exempt a life insurer or pension fund, wholly or partly, from complying with the investment limits prescribed under subparagraph (1), the Registrar may, by notice in writing to the insurer or pension fund, exempt the insurer or pension fund from complying with the limits, subject to such conditions as the Registrar may determine. 16.—(1) Where an investment manager is involved in the origination of a debt or equity security that is a private placement, a life insurer or pension fund shall, before investing in the security, satisfy itself that— (a) there is separation of duties within the investment manager such that security origination and fund management services are performed by different departments; and (b) the investment manager has made a full disclosure of interest in the origination of the security. (2) A life insurer or pension fund shall, before investing in a debt or equity security that is a private placement, ensure that the issuer of the security has provided to the insurer or pension fund a private placement memorandum that includes the information prescribed in the Guidelines for Private Placements issued by the Registrar. (3) Where the insurer or pension fund is satisfied that— (a) the memorandum prescribed under subparagraph (2) has been provided; (b) the arranger has conducted a thorough due diligence on the issuer of the security; and (c) it is prudent to make the investment, the insurer or pension fund shall conclude a subscription agreement with the issuer of the security. (4) Where an investment in a private placement would result in the life insurer or pension fund having an exposure, all private placements combined, of more than ten percent of its assets, the insurer or pension fund shall not make the investment without the prior written approval of the Registrar. (5) Where the exposure of the insurer or pension fund from the transaction is more than two percent of its assets, the life insurer or pension fund shall, within thirty days of investing in the private placement, submit to the Registrar a copy of the report assessing the investment. 568 12th September, 2025 Investment in a private placement

17.—(1) A life insurer or pension fund may invest in a qualifying infrastructure asset specified in the Second Schedule subject to the limits prescribed in the First Schedule. (2) The criteria set out in the Third Schedule shall be used as the qualifying criteria for infrastructure project entities. 18.—(1) A pension fund shall invest at least five percent of its assets in qualifying infrastructure assets, subject to the limits prescribed in the First Schedule. (2) A pension fund which is not compliant to the requirement prescribed under subparagraph (1) on the date this Directive comes into force shall— (a) within thirty six months of that date— (i) comply with the requirement; and (ii) submit to the Registrar a plan of action for complying with the requirement; and (b) by 31st December of each year, until the requirement is attained, submit to the Registrar a progress report on attainment of the requirement. 19.—(1) Where the Registrar determines that an insurer, pension fund or member of a board has contravened this Directive, the Registrar may impose an administrative penalty or give a written direction specified under section 39 of the Act on the insurer, pension fund or member of the board. (2) The Registrar may, in addition to the administrative penalty or direction imposed under subparagraph (1), impose any one or more of the following sanctions against the insurer, pension fund or member of the board— (a) prohibition from declaring or paying bonuses, salary incentives or other discretionary compensation to directors, trustees or managing officers; (b) suspension of acquisition of fixed assets; and (c) suspension or cancellation of licence. 20. A life insurer or pension fund whose investments, on the date this Directive comes into force, are not compliant to the requirements prescribed under the Directive shall, within thirty-six months of the Directive coming into force, comply with the Directive. 12th September, 2025 569 Investment in infrastructure assets Minimum investment in infrastructure assets by pension fund Contravention and penalties Transitional arrangements

FIRST SCHEDULE (para. 15(1)) INVESTMENT LIMITS 570 12th September, 2025 Item 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 Asset Category Deposit in financial institutions Government securities Securities by state owned enterprise Collective investment schemes Listed debt securities Unlisted debt securities Mortgages Asset backed securities Listed equity securities Unlisted equity securities Property-related investments Derivatives Policy loafs Insured funds Qualifying infrastructure assets Offshore investments Other assets as may be approved by the Registrar Maximum Exposure to the Asset Category: Life Insurer 30% 60% 20% Look through principle 60% 10% 10% 10% 60% 10% 30% 10% No limit Not applicable 30% 10% 5% Maximum Exposure to the Asset Category: Pension Fund 30% 60% 20% Look through principle 60% 10% 10% 10% 60% 10% 30% 10% Not applicable 100% 10% 10% 5% Maximum Exposure to a Counterparty or Counterparty Group 15% No limit 5% No limit 10% 5% 5% 5% 15% 5% 10% 5% No limit 100% 10% 5% 5%

SECOND SCHEDULE (para. 17(1)) QUALIFYING INFRASTRUCTURE ASSETS

1. Economic infrastructure: (a) Electricity generation and transmission infrastructure and related services (b) Oil and gas infrastructure and related services (c) Mining infrastructure and related services (d) Road infrastructure and related services (e) Public transport infrastructure and related services (f) Railway infrastructure and related services (g) Port and harbour infrastructure and related services (h) Airport infrastructure and related services (i) Information and communications technology infrastructure and related services (j) Development of new human settlements and related infrastructure

2. Social infrastructure: (a) Education infrastructure and related services (b) Healthcare infrastructure and related services (c) Affordable housing infrastructure and related services (d) Cultural and tourism infrastructure (e) Sports, parks, and green space infrastructure

3. Environmental infrastructure: (a) Energy efficiency and generation (b) Water works and related infrastructure (c) Wastewater treatment and related infrastructure (d) Waste management and related infrastructure (e) Agriculture, food systems and food security infrastructure (f) Low-carbon, climate-resilient built environment, and human settlements THIRD SCHEDULE (para. 17(2)) QUALIFYING CRITERIA FOR INFRASTRUCTURE PROJECT ENTITIES

4. The infrastructure project entity and the substantial majority of its assets are located in Malawi;

5. The cash flow generated by its infrastructure assets allow for all financial obligations to be met under sustained stresses that are relevant for the risks of the project; 12th September, 2025 571

6. The cash flow that the infrastructure project entity generates for debt providers and equity investors is predictable, with all except an immaterial part of the revenues one of the following criteria is met— (a) the revenues are availability-based; (b) the revenues are subject to a rate-of-return regulation; (c) the revenues are subject to a take-or-pay contract; (d) the level of output or the usage and the price independently meets one of the following criteria— (i) it is regulated; (ii) it is contractually fixed; and (iii) it is sufficiently predictable as a result of low demand risk; (e) where the revenues of the infrastructure project entity are not funded by payments from a large number of users, the party which agrees to purchase the goods or services provided by the infrastructure project entity is one of the following— (i) the Government of Malawi or any other government in COMESA, SADC or OECD; (ii) multilateral development organisation or international financial institution, as may be approved by the Registrar; (iii) an entity whose credit assessment by a credit rating agency listed in the Fifth Schedule is investment grade; (iv) an entity that is replaceable without a significant change in the level and timing of revenues.

7. The infrastructure asset and infrastructure project entity are governed by a regulatory or contractual framework that provides debt providers and equity investors with a high degree of protection including the following— (a) the contractual framework includes provisions that effectively protect debt providers and equity investors against losses resulting from the termination of the project by the party which agrees to purchase the goods or services provided by the infrastructure project, unless one of the following conditions is met— (i) the revenues of the infrastructure entity are funded by payments from a large number of users; or (ii) the revenues are subject to a rate-of-return regulation; and (b) the infrastructure project entity has sufficient reserve funds or other financial arrangements to cover the contingency funding and working capital requirements of the project.

8. Where investments are in bonds or loans, the contractual framework includes the following— (a) debt providers have security or the benefit of security to the extent permitted by applicable law in all assets and contracts that are critical to the operation of the project. Notwithstanding this requirement, for investments in bonds or loans, where a life insurer or pension fund can 572 12th September, 2025

demonstrate that security in all assets and contracts is not essential for debt providersto effectively protect or recover the majority of their investment, other security mechanisms may beused. In that case, the other security mechanisms shall comprise at least one of the following— (i) pledge of shares; (ii) step-in rights; (iii) lien over bank accounts; (iv) control over cash flows; and (v) provisions for assignment of contracts; (b) the use of net operating cash flows after mandatory payments from the project for purposes other than servicing debt obligations is restricted; (c) restrictions on activities that may be detrimental to debt providers, including that new debt cannot be issued without the consent of existing debt providers in the form agreed with them, unless such new debt issuance is permitted under the documentation for the existing debt; 6. Where investments are in bonds or loans for which a credit assessment by a credit rating agency is not available, the investment instrument and other pari passu instruments are senior to all other claims other than statutory claims and claims from liquidity facility providers, trustees and derivatives counterparties; 7. Where investments are in equities, or bonds or loans for which a credit assessment by a credit rating agency is not available, the following criteria are met— (a) where the infrastructure project is in the construction phase the following criteria shall be fulfilled by the equity investor, or where there is more than one equity investor, the criteria shall be fulfilled by the group of equity investors as a whole— (i) the equity investors have a history of successfully overseeing infrastructure projects and the relevant expertise; (ii) the equity investors have a low risk of default, or there is a low risk of material losses for the infrastructure project entity as a result of their default; and (iii) the equity investors are incentivised to protect the interests of investors; 8. Where there are construction risks, safeguards to ensure completion of the project according to the agreed specification, budget or completion date; 9. Where operating risks are material, they are properly managed; 10. The infrastructure project entity uses tested technology and design; 11. The capital structure of the infrastructure project entity allows it to service its debt; 12. The refinancing risk for the infrastructure project entity is low; 13. The infrastructure project entity uses derivatives only for risk-mitigation purposes. 12th September, 2025 573

FOURTH SCHEDULE (para. 3) QUALIFYING CRITERIA FOR INFRASTRUCTURE CORPORATE ENTITY

1. The substantial majority of the infrastructure corporate entity's revenues are derived from owning, financing, developing or operating infrastructure assets located in Malawi;
2. Where no credit assessment from a credit rating agency is available for the infrastructure corporate entity— (a) the capital structure of the infrastructure corporate entity allows it to service all its debts under conservative assumptions based on an analysis of the relevantfinancial ratios; (b) the infrastructure corporate entity has been active for at least three years or, in the case of an acquired business, it has been in operation for at least three years;
3. Where a credit assessment from a credit rating agency is available for the infrastructure corporate entity, such credit assessment is investment grade;
4. The revenues generated by the infrastructure corporate entity satisfy one of the following criteria— (a) the revenues are availability-based; (b) the revenues are subject to a rate-of-return regulation; (c) the revenues are subject to a take-or-pay contract; (d) the level of output or the usage and the price independently meet one of the following criteria— (i) it is regulated, (ii) it is contractually fixed, (iii) it is sufficiently predictable as a result of low demand risk; (e) the revenues are diversified in terms of activities, location, or payers, unless the revenues are subject to a rate-of-return regulation or a take-or- pay contract or the revenues are availability based.
5. Where the revenues of the infrastructure corporate entity are not funded by payments from a large number of users, the party which agrees to purchase the goods or services provided by the infrastructure corporate entity is one of the following— (a) the Malawi Government or any other government in COMESA, SADC or OECD; (b) multilateral development organisation or international financial institution; (c) an entity for which the credit assessment by a credit rating agency is investment grade; or (d) an entity that is replaceable without a significant change in the level and timing of revenues. 574 12th September, 2025

FIFTH SCHEDULE (para. 3) RECOGNIZED CREDIT RATING AGENCIES

1. AM Best

2. Dominion Bond Rating Service

3. Fitch Rating Services

4. GCR

5. Japan Credit Rating Agency

6. Kroll Bond Rating Agency, Inc.

7. Moody’s Investors Service

8. Standard and Poor’s Made this 10th day of September, 2025. DR. M. M. MWALE (REF NO. FIN/PFSPD/02/03) Registrar of Financial Institutions

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