After losing the lucrative Botswana Public Officers Pension Fund (BPOPF) contract, listed diversified financial services group Botswana Insurance Holdings Limited (BIHL) has admitted it will have to restructure its business to adjust to the drastic reduction of its assets under management.
The group said in its full year results for the period ended 31 December, 2014 that subsequent to year end, assets under management reduced by 30 percent as a result of a mandate withdrawal. BIHL has three subsidiaries in Bifm, Botswana Life and BIHL Sure. Bifm, which has over the years been the talk of the town as the darling of grey haired, received shocking news when it was revealed it has lost the mandate to manage a portion of the highly contested and lucrative BPOPF contract.
“The business commenced with realignment processes that will ensure that it is optimally structured for the decreased volume of operational activities,” said BIHL statement accompanying the results.
“Following the significant reduction in the assets under management, the business will have to restructure in response to this. We will focus on diversifying the profit sources through acquisitions in financial services.”
BIHL said its subsidiary; Bifm achieved very satisfactory results for the year 2014 as a result of continued growth of assets under management, well supported by positive net client contributions. During the period, assets under management increased by 7 percent to P28.9 billion. It said year on year operating profit and profit before tax and minorities increased by 12 percent respectively, with Bifm incurring an adverse fair value adjustment of P15.9 million as a result of the sale of its controlling interest in a Zambian property investment company; this once off event is not expected to reoccur in similar transactions in 2015.
The pension fund is reported to have terminated its P 9billion worth management contract, effectively shrinking Bifm’s funds under management from a whooping P11 billion to just under P 2billion. This led to Bifm firing its Chief Executive Officer, Tiny Kgatlwane. An independent report released last year shed light on the importance of a BPOPF contract to the very existence of fund management companies in Botswana. BPOPF’s assets under management currently stand at P45.1 billion. There were also concerns that BPOPF, as a citizen owned fund, should engage local fund managers to facilitate beneficiation as they buy insurance from Botswana, pay tax in Botswana and employ a good number of Batswana.
Despite this setback, the BIHL results showed net premium income rose by 6 percent from P1.88 billion to P1.99 billion while the value of new life business (VNB) grew significantly by 35 percent to P148.2 million. Botswana Life’s premium income grew by 6 percent over prior year from P1.84 billion to P1.95 billion with all lines contributing to the positive movement while operating profit grew 15 percent year on year to P 317.5 million from P275.7 million. BIHL said the optimisation of Legal Guard has begun to bear fruit both in terms of growth in customer base and improved financial performance. However, the group stated that continued market challenges including strong price competition and slower than anticipated penetration of the commercial lines market resulted in the business taking a view to discontinue offering short term insurance by mid-2014. The short term book was sold to Botswana Insurance Company effective 31 August 2014.