UAP Holdings has slipped into Sh237 million loss even as the insurance company prepares to merge with Old Mutual.
The two insurers are integrating their businesses to form UAP-Old Mutual Group.
In June 2015, Old Mutual increased its stake in UAP to 60.7 per cent, giving it a controlling stake that resulted in the merger and retiring of then UAP chief executive, Mr Dominic Kiarie.
Making the announcement on Friday, UAP-Old Mutual Group CEO Peter Mwangi said the drop in profitability was driven by increased finance costs, resulting from Sh2 billion bond issued in August 2014 to finance regional expansion.
The finance cost went up 300 per cent to Sh316 million up from Sh54 million over the same period last year. The finance cost went up against a six per cent rise in revenue from insurance business and one per cent in other income.
Currency swings and higher operation costs due to regional expansion ate into the company’s revenue as well.
“These expenses resulted in overall reduction in the group’s profitability for the six months of June 2015,” Mr Mwangi added.
The depreciation of the shilling, which is the functional currency against the dollar, caused Sh437 million loss. Further, a dollar-denominated loan for Uganda property and decline in value of shares at the Nairobi Securities Exchange combined to push the company into the loss-making territory.
The firm’s investment income contracted by two per cent mainly as a result of unrealised losses in the value of equities listed at NSE held by long-term business equities. This reduction was despite the increase in the available investable funds from premium collection.
“To cushion against currency losses, the rental income for this property is dollar denominated and we expect that when we revalue the property at year end, the unrealised exchange loss will be reversed by a gain on the asset. We have not revalued our properties at half year,” the Group chief finance officer, Mr Jackson Theuri, said.
Contribution of subsidiaries, however, increased from to 40 per cent from 32 per cent of the Group’s revenue.
The claims incurred increased by 4 per cent to Sh3,888,437 from Sh3,729,100 on the back of rising actuarial reserves for long-term business during the period under review.
“Going forward we will focus on completing the integration of the UAP and Old Mutual business in Eastern Africa,” Mr Mwangi said.
“We believe this consolidation will provide a stable platform to enable the business to realise significant growth in revenue and profitability.”