High expenses, poor stock run plunge Britam into Sh1bn loss

What you need to know:

  • The insurance firm posted an unrealised loss of Sh2.8 billion on the value of its financial assets compared with an unrealized gain of Sh4.1 billion in the same period last year.

Britam sunk into a Sh1 billion loss in the year ended December, reversing a net profit of Sh2.4 billion in the previous period as higher expenses and the stock market downturn took a toll.

The Nairobi Securities Exchange-listed firm has, however, maintained its dividend payout at Sh0.3 per share to be paid on June 24 to investors on the register as of June 9.

Increased expenses and paper losses on its equities and fixed-income investments, surpassed growth in premiums and investment income, resulting in the loss.

Britam’s total expenses, including insurance claims and interest on borrowings, rose 23.5 per cent to Sh21.9 billion and overtook total income which declined 2.7 per cent to Sh20.1 billion.

The company also recorded an unrealised loss of Sh2.8 billion on its securities investments in the period compared to a gain of Sh4.1 billion a year earlier.

“Notably, the downturn in the performance of the securities market has impacted the fair value of the financial assets resulting in a loss on financial assets at fair value,” Britam said in a statement.

The paper losses are concentrated in the company’s key investments Equity Group, where it has a 10.1 per cent stake, and Housing Finance (46 per cent), with the share prices of the financial institutions having dropped by double digits.

Britam has one of the largest exposures to the equities market whose negative returns last year also hurt other insurers including Pan Africa Insurance Holdings.

Market selloff

The benchmark NSE 20 Share Index fell 21 per cent last year while the overall market, as measured by the NSE All Share Index, declined 10.6 per cent.

The market sell-offs saw the Nairobi bourse lose over Sh200 billion, marking down the insurers’ marketable securities.

Underwriters with large investments in publicly traded companies have seen their earnings swing in line with the market cycles, recording big profit jumps in bull runs and lower earnings in bear markets.

Insurers, however, tend to have a long-term investment horizon and rarely realise losses from trading their stocks. This has seen them receive dividends even as the long-term rally of equities add to their net worth.

Britam, however, incurred a capital loss of Sh281 million last year from the sale of shares worth over Sh1.7 billion.

Additional insurance firms are seeking to invest more in alternative asset classes such as real estate to mitigate the impact of market swings on their short-term performance.

Britam, which had in the past announced a Sh10 billion property fund, said it is still keen on expanding its property portfolio.

Analysts at Standard Investment Bank noted that the insurer has one of the highest exposures to quoted securities that accounted for 23.9 per cent of its investments as of 2014.

Listed underwriters have themselves been hit by the bear run, exposing investors to a double hit of reduced earnings and capital losses.

Britam’s share price, for instance, has dropped 54 per cent over the past 12 months to trade at Sh11.5.