Insurance group Sanlam Kenya has defended its withdrawal last month of a profit warning published on December 30, saying it was in reaction to new guidelines issued by the regulator.
The insurer on Thursday announced a near-tripling of its after-tax profit to Sh70.6 million from Sh27.3 million in December 2015 after adopting a liberal accounting method that saw the firm retract a profit alert seven weeks after issue.
Sanlam Kenya Group chief executive Mugo Kibati said the company acted in “abundance of caution” when it issued the profit warning, but later received guidelines from the regulator which necessitated the withdrawal on February 9.
“At the time we issued the profit warning, we were under the impression that the gross premium valuation guideline would be more severe than it turned out to be,” Mr Kibati said at an investor briefing Thursday.
“The whole discretion of the interest margin wasn’t clear. The guidelines did come after we had issued the profit warning. It was a bit more lenient than we had expected. We immediately and without delay withdrew the profit warning,” said Mr Kibati.
Capital Market Authority rules require listed companies to publicly issue a profit alert if they project earnings will fall by more than 25 per cent, to warn investors of the risks of capital losses and reduced dividend as a result of the profit fall.
Sanlam has adopted the gross premium valuation method of valuing its long-term insurance business liabilities, changing from the previously applied net premium valuation methodology.
The new accounting standard increases the accuracy of providing for future claims, while the previous system led to higher provisioning by overestimating insurance liabilities.
Mr Kibati added that there are still grey areas as “it is still not yet a confirmed guideline.”
The insurer, previously known as Pan Africa Holdings, is majority-owned by South African financial services group Sanlam which has a 68 per cent stake.
Sanlam shareholders are now marking the third consecutive year without paying dividends, having last received a Sh4.50 per share payout in for the fiscal year ended December 2013.
“The new risk-based capital regime in 2018 will significant increase the capital requirement for the group’s life and general business. The board therefore doesn’t not recommend payment of a dividend,” Sanlam said in a trading update.
Among the top shareholders weathering the dividend drought storm are billionaire Patel Baloobhai Chhotabhai, Mayfair Insurance, Thammo Holdings Ltd, APA Insurance, Anjay Vithalbhai Patel and Cannon Assurance, among others.
The group’s gross underwritten premium remained flat at Sh5.2 billion. Investment income grew 5.4 per cent to reach Sh2.5 billion.
Net claims and policyholder payments reached Sh4.4 billion from Sh4.2 billion in 2015.
The general insurance subsidiary – previously Gateway Insurance and now controlled 68 per cent by Sanlam – continued its loss-making streak.
It made a loss of Sh36.7 million, an improvement from 2015 when the unit was Sh171 million in the red.
Mr Kibati revealed that the unit had exited the PSV insurance market and is now focusing on other business lines such as marine insurance.