UAP Holdings’ profit drops 8pc to Sh826m on increased claims

What you need to know:

UAP's Gross Written Premium (GWP) grew by 15 per cent with the net earned premium up by 28 per cent in the same period.
The firm however recorded a fall in commissions, pulling down its net earnings.
The absence of Sh203 million tax credit enjoyed in 2015 also hurt the financial group’s bottom line.

UAP Holdings has recorded an eight per cent drop in net earnings for the year 2016 attributed to higher claims and lower commissions earnings.

The insurer earned Sh826 million down from Sh897 million in 2015.

The Group’s Gross Written Premium (GWP) grew by 15 per cent with the net earned premium up by 28 per cent in the same period.

The firm however recorded a fall in commissions, pulling down its net earnings.

“Commission income reduced by 33 per cent driven by a change in the business mix as well as a reduction in fronting business. Total Income was up 18 per cent to Sh19 billion from Sh16 billion in 2015,” the firm noted in a statement.

The absence of Sh203 million tax credit enjoyed in 2015 also hurt the financial group’s bottom line.

Also dragging down its profitability was a 23 per cent rise in net claims payable, although the short-term business claims ratio went down from 62 per cent in 2015 to 59 per cent in 2016 driven by the group’s focus on profitable business growth and claims cost management initiatives.

Apart from the rise in net claims, UAP also recorded a 28 per cent rise in long term business net claims driven by an increase in actuarial reserves in line with new business growth.

“We expect that these reserves will unwind over time and contribute to future earnings,” the firm wrote. The total comprehensive income for the year was also negatively impacted by market factors resulting in a loss of Sh101 million.

This was attributed mainly to the impact of the bear run at the Nairobi Securities Exchange underwriter’s equity holdings as well as defined benefit pension schemes and the devaluation of the South Sudanese pound.

UAP directors have recommend a dividend of Sh1.70 per share. The payout, which will also be subject to withholding tax, is an improvement on the zero dividends last year.

The group’s profits had almost halved, recording a 46 per cent drop to Sh896.6 million (2015) from Sh1.67 billion in 2014.

The firm is pegging future growth prospects on its focus on the provision of more financial services in the wider East African market.

Growth is also expected to be supported by income expected from completion of key property projects in South Sudan (UAP Equatorial Tower) and Kenya (UAP Old Mutual Tower).