BIHL dominance requires 'enhanced supervision' – FSC
Mbongeni Mguni | Monday June 26, 2023 06:00
BIHL is the country’s largest diversified financial services group, with its subsidiary, Botswana Life, enjoying a 71% market share and its asset management unit, Bifm, also the largest in its sector with assets under management last measured at P38 billion.
BIHL also has significant shareholding in other leading entities such as Letshego and Botswana Insurance Company.
In its recently released market report for May, the FSC noted a risk concentration in the pension and insurance fund sector, explaining that the industry remained highly concentrated amongst a handful of dominant players.
The report was prepared by the Bank of Botswana in collaboration with the Ministry of Finance, the Non-Bank Financial Institutions Regulatory Authority (NBFIRA), the Financial Intelligence Agency, the Deposit Insurance Scheme of Botswana and the Botswana Stock Exchange Limited.
“Insurance companies could affect financial stability and contribute to systemic risk through three potential transmission channels, namely, failure to provide critical services, inability to mitigate risk and compensate for the loss with respect to systemically important counterparties and risk to systemically important financial institutions,” the FSC said. “In a highly concentrated market, such as the domestic market, failure by a dominant insurance company may leave a significant gap in the provision of critical risk mitigation services to the economy as remaining companies may not have the capacity to fill the void.”
The council added that the lack of alternative service providers could amplify the effect of an insurance company’s distress on the real economy and singled out the BIHL’s dominance as an issue warranting greater monitoring.
“The dominance of BIHL in the local insurance sector exacerbates these risks and warrants enhanced supervision,” the FSC stated. “The top five largest life insurance companies have a market share of over 90% of the assets of the life insurance sector and consequently dominate in gross premiums written.”
BIHL bounced back from a pandemic slowdown to post operating profits of P408 million last year, more than 130% higher than the previous year. The group’s regulators include NBFIRA and the Botswana Stock Exchange, where it is listed and adheres to extensive compliance regulations. In the year to December 2022, auditors confirmed that BIHL was well-capitalised with its capitalisation cover measured at 7.7 times the minimum required levels.
“We have a very solid base to work from with a well-capitalised group that is future-ready,” said group chief financial officer, Kudakwashe Mukushi, writing in BIHL’s recently released annual report for 2022. “We have 7.7 times the required capital cover, up from 6.8 times last year as a result of the capital requirement decreasing from P482 million to P447 million.”
The FSC, however, said the market concentration in the insurance sector warrants the need to fast-track the Domestic Systemically Important Financial Institutions (D-SIFI) framework to support enhanced monitoring and supervision of entities such as BIHL.
“NBFIRA is developing a framework for identifying and designating insurance D-SIFIs,” the council noted.