NSE investors lose Sh15b in paper wealth
By John Otini
Investors holding insurance stocks at the Nairobi Securities Exchange (NSE) have lost Sh15 billion in wealth to date due to the new International Financial Reporting Standards (IFRS) that will be effective next year.
Genghis Capital analyst Patrick Mumu said the new IFRS17 insurance contract regulations will force companies to be conservative and slow down premium growth because claims under the new regulation will increase at the onset due to a forward looking model, much like IFRS 9 with banks.
Additionally, he said IFRS 17 requires income only be recognised when the firm receives the premium, adding that this has not been the case in the past as firms have been able to recognise revenue not already submitted by brokers and agents.
“We may see a huge write off in insurance firms profit and loss statements as most of them already recognised revenue not received.
The likelihood of receiving these past dues under agents is also under question as brokers invested the premiums and may not be able to recoup the full amounts. Share prices of all listed insurance companies dropped by an average of 20.5 per cent in the 12 months ending January 2020.
End year reports as well as current events, according to Willis Nalwenge of Kingdom Securities, largely influence investors’ perceptions in the equity markets. He said most insurance firms last year experienced their own distinct issues such as change of management.
The hardest hit were CIC Group investors, whose share value dropped by 36.8 per cent in 2019. The insurer had reported a profit decline in its end year report 2018 of 96 per cent to Sh20.9 million from the previous year’s Sh537 million.
Britam also posted a Sh2.2 billion after tax loss for the year ended December 31, 2018 following a hit on its equity investment in mortgage lender Housing Finance Group (HF). It went on to write off Sh1.57 billion from its investment in the lender.
The diversified financial services group further attributed its loss to provisions of the new IFRS9 due to significant investment in financial assets.
Sanlam Kenya, whose share value dropped 20.6 per cent, plunged into a Sh1.97 billion loss on account of reduced income and increased expenses because it had to write off some of its key investments.
However, investors are expected to change their perceptions this year with insurance companies having recorded profits indicating a positive outlook for their share value.