Britam Holdings Ltd (BRIT) has issued a profit warning for the year to Dec 31, 2017, citing a one-off switch to a new methodology of accounting for liabilities that helped improve 2016 earnings.
“The earnings of the company for the current financial year are expected to decrease by at least 25 percent compared to the earnings reported for the same period in 2016,” said Paul Muthaura, CEO Britam in a statement to the Nairobi Securities Exchange.
“The expected decline in earnings is mainly due to a change in 2016, of the valuation method of the long-term liabilities to Gross Premium Valuation (GPV) methodology from the previously applied Net Premium Valuation (NPV) in compliance with requirements of the Insurance Act as amended by the Finance Act 2015.
The Insurance Regulatory Authority (IRA) required all insurers to report their FY’2016 results based on Gross Premium Valuation (GPV) of the long-term insurance liabilities as opposed to the previously used Net premium Valuation (NPV) methodology, necessitated by the Insurance Act (Cap 487) and amendments to the Finance Act 2015.
While NPV method led to higher reserving by overestimating insurance liabilities, GPV method increases the accuracy of providing for future claims thus reducing provisions and making the companies more profitable.
The one-off change positively impacted the warnings in 2016 by Ksh 5.2 billion. “Without the impact of the one-off change, the Company’s performance has improved in 2017,” said Muthaura.
He reiterated that “The company is on track in executing its 2016-2020 strategy on the backdrop of which, the board and the Management are optimistic that the business will continue to perform well in 2018.”
According to Cytonn Investment Kenya Listed Insurance Company H1’2017 Results, they recorded an average decline of 5.6 percent in core earnings per share, from an average gain of 69.4 percent in H1’2016.
Cytonn noted that the overall performance was weighed down by Britam Holdings, which was the ‘worst hit’ due to change in valuation methodology on the long-term insurance claims. “Hence the normalization in net insurance benefits and claims in H1’2017.”
Britam’s H1’2017 Profit before tax (PBT) declined by 53.1 percent to Kshs 1.2 bn, from Kshs 2.6 bn in H1’2016, while profit after tax (PAT) declined by 44.1 percent to Kshs 1.0 bn from Kshs 1.8 bn in H1’2016.
Earnings per share (EPS) declined by 44.1% coming in at Kshs 0.5, from Kshs 0.9 in H1’2016, attributed to a 33.3% growth in Total expenses to Kshs 13.5 bn from Kshs 10.1 bn in H1’2016 and undisclosed effect in the change in the valuation policy.