- Says at P1bn this year, claims and benefits are less than last year’s P1.4bn but are “still high”
- Notes life profit of P100m at June 2023 is P74,8m lower than life profit at June 2022
- Up 12%, AUM at Bifm Group to close the period at P41.4bn (2022: P37.1bn)
Botswana Insurance Holdings Limited (BIHL) continues to battle high claims, the Chief Financial Officer (CFO) of the Group, Kudakwashe Mukushi, has said.
Speaking during presentation of the Group’s half-year financial results on Wednesday this week, Mukushi said BIHL’s claims and benefits remain significantly high.
While claims and benefits dropped from around P1.4 billion in the last corresponding period to P1 billion this year, Mukushi said the figure is still high. The leading financial services group had previously decried increased lapses and surrenders but says has gone down.
“While we have seen a decline in surrenders, we have seen a growth in group life insurance claims,” said Mukushi. “Our admin expenses are also growing quite significantly.” However, he added, the admin expenses were affected by restructuring at Botswana Life Insurance Limited, one of the Group’s subsidiaries.
BIHL’s two principal businesses are life insurance, which provides life insurance services to customers through Botswana Life, and asset management – which provides asset management services through Botswana Insurance Fund Management Limited (Bifm), as well as Bifm Unit Trusts. Segments that do not fall under the two are classified as ‘other’ and include general insurance and micro-lending.
BIHL’s cash cow
According to Mukushi, the life insurance business – which is BIHL’s a cash cow – has seen a significant increase in profitability, driven by higher investment returns. With adoption of the new accounting standard IFRS 17 Insurance Contracts effective January 2023, the prior year’s numbers have been restated for comparability. Overall, said Mukushi, the profits from insurance operations have significantly increased compared to the prior year.
The key driver for the increase in profitability is higher investment returns earned during the half-year, owing to positive fair value gains across assets backing insurance contracts and IFRS 9 Investment Contracts. Mukushi said insurance revenue is mainly driven by the expected release from contractual service margins (CSM) and Risk Adjustment (RA).
Low new business and high lapses
CSM represents the unearned profits released as the insurance service is provided. The release of the profits was P100 million in June 2023, P74,8 million lower than in June 2022.
This is driven by the reduced CSM and RA during 2022, resulting in a lower starting CSM in 2023. Mukushi said low new business and high lapses contributed to this lower CSM. He added that insurance service expenses were higher in June 2023, mainly due to increased deferred acquisition costs for IFRS 9 Classified Policies.
Meanwhile, for the period under review, value of new business, which measures the present value of future new business profits, declined by 11 percent owing to declining new business volumes.
New Retirement Funds Act
According to the Group, the new Retirement Funds Act has seen a significant reduction in pensioners who are able to buy annuities due to the generous encashment limits introduced that have led to industry fears that they could result in a significant portion of pensioners being unable to save for the future.
During the first half of the year, the Bifm Group’s operating profit showed a decline of 13 percent against the prior year. The Zambian business was the main detractor as it closed the period with a significantly lower operating performance, owing to a one-off accounting positive adjustments recorded in the prior year.
Letshego’s sub-optimal markets
The Bifm’s performance positively contributed to the overall Group results, recording an operating profit improvement of 15 percent, driven by growth in overall Asset under Management (AUM).
Total Bifm Group AUM increased by 12 percent to close the period at P41.4 billion (2022: P37.1 billion), including Zambia’s P6.5 billion and Bifm Unit Trusts at P2 billion. While BIHL’s subsidiaries and associates registered good performance during the period, BIHL Group CEO, Catherine Lesetedi, has expressed concern about Letshego. Through Botswana Life, BIHL holds a 27.61 percent interest in Letshego.
“Letshego’s performance still doesn’t meet expectations,” said Lesetedi. “We continue to say to Letshego to exit some of the sub-optimal markets.” But while BIHL is concerned about its associate’s performance, the Group still believes there is value that can be unlocked from the pan-African micro-lender. “We do see value in Letshego and this value can be unlocked when it exits some of the markets,” said Lesetedi. “The business needs to be reconfigured.”