Insurance group Britam #ticker:BRIT has issued a profit warning for the year ended December, alerting investors that its earnings will be at least 25 per cent lower compared to the year before.
The Nairobi Securities Exchange-listed firm now expects a maximum net profit of Sh395.5 million in the review period, down from Sh527.4 million recorded in the year ended December 2017.
Britam blamed the performance on a tough insurance market and the bear run on the Nairobi bourse that has left it with billions of shillings in paper losses across counters like Equity Group #ticker:EQTY and HF Group. #ticker:HFCK
“The expected decline is mainly due to the performance of the stock market which has led to reduced returns from our equity investments; and the challenging operating environment which has adversely affected the business,” Britam said in a statement.
Other firms that have issued profit warnings include Bamburi Cement,#ticker:BAMB HF Group, Sameer Africa #ticker:FIRE and insurance firm Sanlam Kenya #ticker:PAFR in a trend that is likely to result in dividend cuts besides risk of further paper losses.
The benchmark NSE-20 share index closed 2018 down 23.7 per cent and the market capitalisation loss stood at Sh419 billion, with most stocks, including Safaricom #ticker:SCOM, Equity #ticker:EQTY and KCB #ticker:KCB, dragged down. More insurance firms are taking a double hit from the bear market and increased competition in their underwriting business.
Sanlam, for instance, continues to post weaker results in its general and life insurance business, according to a trading update by its South African parent company.
Insurers with large investments in publicly traded companies have seen their earnings swing in line with the market cycles, recording big profit jumps in bull runs and lower earnings in bear markets.
More insurance firms are, however, seeking to invest more in alternative asset classes like real estate to mitigate the impact of market swings on their short-term performance. Sanlam and Britam, for instance, recently built towers in Nairobi.
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