BIHL profits drop 24% on higher COVID-19 claims

Executing strategy: Lesetedi PIC: MORERI SEJAKGOMO
Executing strategy: Lesetedi PIC: MORERI SEJAKGOMO

The country’s largest and most diversified financial services group, BIHL, saw its pre-tax profits for the first six months of this year drop about 24% after the Delta variant ballooned deaths in the country, causing claims to jump P354 million during the period.

'Never seen before' mortality weighed on the returns from Botswana Life, the BIHL group’s life insurance business which is traditionally a key revenue driver, executives told BusinessWeek. Since the onset of COVID-19 last March, the group has paid out more than 12,600 claims, fuelled by the fact that many of its clients hold up to four policies each.

“Our interventions include firming of mortality and persistency assumptions and a review of underwriting protocols including pricing,” BIHL group CEO, Catherine Lesetedi told BusinessWeek. “It is important to underscore the fact that a successful vaccination rollout is what will give businesses confidence and certainty on risk management approaches.”

In the six months to June 30, the BIHL group’s pretax profits reached P245.7 million, from P321.8 million in the corresponding period last year. Net insurance premium income rose to P1.56 billion from P1.2 billion last year, but the gains were undercut by higher claim payouts to policyholders as a result of COVID-19 mortalities.

Figures shared by the Presidential COVID-19 Task Team last month showed that deaths from the virus peaked at 573 in July compared to just four in the same month in 2020. Between January and June 30 this year, COVID-19 deaths in the country reached 1,137 compared to just 68 for the whole of last year, driven by the aggressive Delta variant, which is more transmissible and raged through the local population.

Botswana Life, the country’s oldest and largest life insurance company, found itself faced with mounting claims within its membership estimated at just below 300,000 policies.

Funeral Services Group (FSG), in which BIHL holds about 38% equity, had a stronger revenue performance in the year to June 30, also linked to higher mortalities. BIHL’s share of revenues from associate companies like FSG, rose just over 10% to P123.9 million over the period, largely due to stronger returns from the funeral undertaking business.

“The main contributor to the growth in FSG’s profitability relates to the increased funeral services revenue arising from the excess mortality experience in the country,” Lesetedi told BusinessWeek. “The undertaking business saw increased burials as a result of this.”

The CEO said going forward and looking at the uncertainties associated with the pandemic, BIHL would bank on the diversity of its service offerings and strategy. She said the group had noted an increase in the penetration of some products, which had struggled in the past such as the uptake of life cover products. In the case of the latter, the higher uptake has emanated from the realisation by some clients that life cover is a necessity “especially on the back of losing loved ones and breadwinners to the pandemic”. The group, however, acknowledges the tighter trading environment brought on by COVID-19 and is focussing on strengthening its existing businesses, rather than rolling out the expansion programme it had announced last year. Two targets for acquisition revealed last year have since been abandoned as a result of differences in valuation.

“Although navigating through the current environment is challenging and rolling out the diversification strategy has proven to be difficult, as a business we continue to explore opportunities which may arise and be the right fit for the business on an ongoing basis,” Lesetedi said.

The tighter trading conditions also include the trying economic challenges being faced by consumers, a situation that limits the expansion of BIHL’s businesses.

“The economic conditions are quite challenging, more so that the pandemic has put additional pressure on already strained incomes of households,” Lesetedi said. “In addition to ordinary needs, households now face new pressures of medical expenses, increase in VAT, increase in administered prices, and to top it off, some are having to take care of orphaned relatives. “As the BIHL Group, we are alive to all these hardships. “The successful rollout of the COVID-19 vaccines to the entire population remains the single most important factor to opening up the economy and alleviate some of the hardships, but even then the socio-economic impacts will be felt for a long time to come.”

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