Change in accounting triples Britam profit to Sh1.8bn

A change in accounting practice nearly tripled Britam Holdings’ net profit in the half year ended June by significantly reducing insurance claims and expenses.

The Nairobi Securities Exchange-listed firm posted a net profit of Sh1.8 billion in the review period, up 184.8 per cent from Sh624.5 million a year earlier.

The profit growth was largely driven by a 29.3 per cent drop in insurance claims to Sh3.6 billion, representing a saving of Sh1.5 billion.

Britam said it adopted a new accounting practice that marked down the claims besides recognising Sh331 million to settle a portion of its operating expenses linked to payment of outstanding policyholders’ benefits.

“The group has valued its long-term insurance business liabilities using the gross premium valuation (GPV) methodology which is a change from the previously applied net premium valuation (NPV) methodology,” Britam said in a statement.

“The group has also recognised additional claims handling expenses amounting to Sh331 million … The net impact of these two changes is an improvement in profit before tax by Sh1.95 billion.”

The company said the new accounting standard increases the accuracy of providing for future claims, indicating that the previous system led to higher reserving by overestimating insurance liabilities.

The accounting changes are required by the Insurance Regulatory Authority (IRA) under the Insurance Act and amendments in the Finance Act 2015, Britam said.

The savings were augmented by a drop in reinsurance premiums and commissions, further boosting the firm’s earnings.

Britam’s reinsurance premiums –paid to underwriters like Kenya Re with whom they share risks— fell 10.5 per cent to Sh1.6 billion while commissions declined 7.7 per cent to Sh1.8 billion.

Gross premiums increased 3.5 per cent to Sh11 billion while investment income rose 37.9 per cent to Sh2.4 billion.

Operating expenses jumped 27.6 per cent to Sh3.1 billion. “The overall business is looking healthy, and the shift in investments that made us lower our share of equities cushioned us from the NSE bear run,” Gladys Karuri, Britam’s finance and strategy director, said.

She added that Britam sold some shares and increased its investment in treasuries and fixed deposit accounts. Among the counters it sold include Equity Group –its single largest holding at the NSE.

Britam cuts its stake in the bank from the previous 10.1 per cent to nine per cent as of December, selling 34.3 million shares in a transaction that earned it gross proceeds of over Sh1 billion.

Mortgage financier HF Group is Britam’s other major investor at the Nairobi bourse.

Ms Karuri said Britam’s equity investments represented 16 per cent of its Sh81.7 billion total assets as of June, down from 25 per cent a year earlier.

The bear run, now in its second year, has marked down the portfolios of insurance firms by billions of shillings.

The move to cap interest rates sparked panic selling at the NSE yesterday, further hurting insurers with a large exposure to listed banks.

Britam said it is focusing on regional expansion and diversifying its business including by increased investments in real estate.