Inflation in the half year averaged 10.9%, one of the highest levels in recent years, while additional pressure on consumers’ incomes came from two interest rate hikes the Bank of Botswana effected during the period.
On Wednesday, BIHL group chief executive, Catherine Lesetedi told a results briefing that the difficulties encountered by customers in the first half of the year had manifested in policy lapses and an increase in the early maturity termination of investment portfolios by clients.
BIHL’s net insurance premium income dropped to P1.45 billion in the half year to June 30, down from P1.56 billion in the corresponding period last year. Much of the impact came from the single premium line, while the recurring premiums recorded marginal growth.
The group still posted a 39% increase in pre-tax profits for the period to P340.3 million, helped by higher investment and interest income. The percentage increase in profits for the year to June 30 was also magnified by the drop in profits over the corresponding period last year when high COVID-19 claims and mortalities affected the group’s books.
“Our business relies on discretionary income and when consumers are impacted, those difficulties factor through to our business but we believe we have built a resilient business,” she said. “Inflation has been on an upward trajectory and it is expected to remain at these levels until the end of 2023, showing that difficulties will continue for our clients.
Lesetedi said the BIHL’s continued profitability even during difficult times was a testament to the diversification of the group’s revenue lines and distribution channels.
“When some lines underperform, others come through,” she said. “Last year we spoke about declining profits because of amounts that we had to pay to our policyholders and we did that with pride, putting funds into the hands of families. “This time, the claims and mortality side has gone down, although not to pre-pandemic levels. “We have seen increased surrenders and lapses showing that people are not able to support or pay for their policies and there’s an initiative to look at how to help this. “We have also experienced early maturity terminations with people giving up their investment policies as a result of financial pressures.
“This has a negative impact on the business but it’s also positive that they can tap into their investment portfolios and help their families.”
Lesetedi said BIHL had also taken a decision to exit some cover it was providing on the risk side as it did not make sense in terms of profit.
“The value of new business fell because we walked away from unprofitable business lines. “Our philosophy is that we want market share but not at the expense of profitability or writing unprofitable business. “We will not provide cover if we believe we are providing it at a loss-making rate,” she said.
The CEO said going into the second half of the year, BIHL would look at areas of underperformance and engage to penetrate selected segments.
The group’s chief financial officer, Kudakwashe Mukushi said the uptick in profits had provided BIHL with the room to declare an interim dividend of 65 thebe to investors, after having not declared one in the previous corresponding period last year.
“We believe where we have made profits the shareholders should be awarded appropriately,” he said. “We have a three to four-year period where the trajectory for the interim dividend has been going up, from 44 thebe in 2019 to 65 thebe this year.”
BIHL’s proposed payout to investors is the highest interim dividend declared thus far this year for local companies listed on the Botswana Stock Exchange.
