High operational costs weigh on BIHL profits
Gaone Marumoloa | Thursday March 9, 2017 18:00
Group revenues decreased by 14% to P2.1 billion during the financial year ended December 31, 2016 from P2.4 billion in the corresponding period. Profit before tax also declined by 20.2% from P722 million in 2015 to P576 million in 2016.
Presenting the financial results in Gaborone this week, BIHL chief executive officer, Catherine Lesetedi-Letegele said the business has seen a decline in new business, which has been compounded by rising operating costs.
Also during the year, she said, the business effected a change in accounting for outstanding claims, resulting in an increase in the provision for outstanding claims reserve by an amount of P2.7 million.
“This change was required to bring the business in line with recommended best practice in the insurance industry,” she said.
The group’s operating profit for the life business reduced by nine percent while net premium income shrunk by 15% year-on-year with P2.07 billion during 2016 compared to P2.44 billion achieved in prior year.
Lesetedi-Letegele attributed this to the nonrecurring one-off schemes that were signed in 2015 on single premiums.
She also said the reduction in operating profit was due to subdued operational earnings from mostly key business lines under challenging operational conditions.
She said some of the factors that affected the business include the liquidation of BCL, which she said negatively affected BIHL subsidiaries, Botswana Insurance Company (BIC) and Botswana Life Insurance Limited (BLIL).
Given the pressure on sales volumes, Lesetedi-Letegele indicated that management focused on containing expenditure and that the 2016 administration expenses were two percent (P4 million) below prior year.
“This is despite funding the introduction of new segments that are expected to deliver revenue growth in the near future,” she said.
However, Lesetedi-Letegele said the group’s recurring premium income grew by seven percent from P1 billion in December 2015 to P1.085 billion for the full year to December 2016 spurred by a nine percent growth in retail recurring premium income.
She said despite the challenging economic environment, the quality of new business written saw the value of new business, which represents the present value of future profits from new business premiums written remain stable at 99% of prior year.
She further noted that management is encouraged by the progress made since the decision to implement its current strategy with the business remaining profitable for the second year running.
BIHL chairperson, Batsho Dambe-Groth said the group continued to successfully deliver on its twin strategy of growth and profitability.
“We have maintained our established financial position, especially in terms of capital solvency. We remain confident in the group’s ability to maintain strong dividend returns, which will continue to be among our top priorities,” she said.
She noted that a significant shift in the allocation of shareholders capital towards investments in associated financial services providers was realised during this period and that it is expected to enhance overall performance and performance predictability over the medium to long term.