CIC Insurance Group #ticker:CIC is stepping in to fund operations of its loss-making regional subsidiaries, with some of the units rendered technically insolvent from years of losses.
Supporting the units in South Sudan, Uganda and Malawi — which have racked up losses of more than Sh300 million since their formation between 2013 and 2014 — is set to weigh down CIC’s earnings in the short term.
The company, however, says it is confident the subsidiaries will turn a profit in the future.
CIC invested more than Sh1 billion to establish the regional units but it was not immediately clear from it financial books how much additional cash it has spent to prop up the subsidiaries.
Its external auditor Ernst & Young (EY) noted in the company’s latest annual report that the units relied on their parent to meet their obligations in the year ended December, with the insurer committing to continue providing financial support.
“We reviewed letters of undertaking provided by the group to the subsidiaries and the associate confirming that they will continue supporting them by settling their obligations as and when they fall due,” the audit firm said in the annual report.
CIC Africa (Uganda) Ltd made a loss of Sh160 million in the year ended December, deepening the haemorrhage from Sh105 million the year before. The company had a negative net worth of Sh60 million in the review period as liabilities surpassed assets.
CIC Africa Co-operatives Insurance Limited, an associated in which the NSE-listed firms owns a 49 per cent equity, saw its loss rise to Sh45 million from Sh32 million in the same period. The company, operating in Malawi, also sunk into a negative equity of Sh19 million.
CIC Africa Insurance (South Sudan) Limited suffered from hyperinflation in the market, causing the parent company to take a Sh297 million loss on the net monetary position.
The NSE-listed firm said the units’ financial performance has cast doubt on their ability to continue as a going concern. It, however, added that it will continue to fund the companies, which it does not intend to close or liquidate.
“The parent company confirms its commitment to continue giving financial support to the subsidiaries, and it has issued an undertaking in this respect to the subsidiaries and associate,” CIC said in the report.