Chairman’s Statement
ECONOMIC ENVIRONMENT
The economic environment during 2013 was characterised by persistent liquidity challenges, declining inflation and modest economic growth. The country’s Gross Domestic Product is estimated to have grown by 3.4% during 2013 with agriculture estimated to have declined by 1.3%. Industrial capacity utilisation dropped to 39.6% in 2013 compared to 44.2% in 2012. Inflation was 0.33% in December 2013 against 2.91% in 2012 on the back of weakening aggregate demand, stable global oil prices and continued depreciation of the South African Rand. Based on the ZimAsset plan, the government expects Gross Domestic Product growth of 6.1% in 2014 driven by the mining and agriculture sectors.
The Botswana economy, where the Group has a reinsurance operation, saw Gross Domestic Product growth rates increase from 4.2% in 2012 to 5.4% in 2013 being led by increased production and higher prices in mining. Interest rates and inflation remained stable while the Botswana Pula depreciated by 14% against the United States Dollar.
ZIMBABWE INSURANCE SECTOR
In 2013, the Net Premium Written in the life assurance sector grew by 15% to $258 million from $225 million in 2012 with the sector largely adequately capitalised. The short-term insurance sector had an 8% growth from $194 million in 2012 to $210 million in 2013. The major sources of business for the short term insurance sector were motor and fire insurance.
ZIMBABWE PROPERTY SECTOR
The property sector witnessed reduced activity as there was limited long term funding for property developments and mortgage financing. Commercial rental rates were affected by increased levels of voids and high operating cost components. Declining occupancy ratios led to property owners absorbing a greater proportion of the operating costs.
GROUP’S PERFORMANCE
Gross Premium Written (GPW) at $101.1 million for the year ended 31 December 2013 was 14% above the prior year figure of $88.6 million on the back of improved performance across the Group with health insurance, life assurance and short-term reinsurance businesses being the major contributors in absolute terms.
Rental income grew by 6.8% from $7.3 million in 2012 to $7.8 million in 2013 driven by an increase in the contribution of turnover-based rental income. The limited overall economic growth constrained the property market leading to low demand for office and conventional industrial space. The property market continues to face challenges with limited property transactions being recorded especially in residential stands and low value properties.
The year-on-year attributable profit declined mainly due to the higher claims ratio for the health insurance business and the adoption of a more prudent approach to technical reserves following the introduction of the actuarial control cycle during the year. As a result, the shareholder risk reserves and incurred but not reported claims provisions increased by $4.4 million (101%) and $1.2 million (65%) respectively compared to the prior year. The actuarial control cycle will result in the insurance operations being managed based on actuarially determined parameters in terms of both technical and shareholder risk reserves, which is expected to lead to more efficiency, consistency and financial soundness.
OPERATING BUSINESS UNIT ANALYSIS
Property
Pearl Properties
Rental income increased by 2% to $9.0 million (2012: $8.8 million), due to a marginal increase in rental per square metre and higher turnover-based rentals. The average rental per square metre achieved was $8.25 (2012: $8.18) and the annualised rental yield achieved in 2013 was slightly lower at 7.9% (2012: 8.6%) due to slower growth in rentals relative to the appreciation in investment property values. The vacancy rate for the year 2013 was 23.3% (2012: 21.1%), a result of voluntary surrender of space by tenants due to difficult operating conditions in their different industry sectors. Investment properties were revalued by an independent professional valuer and resulted in fair value gains of $8.0 million compared to 2012 fair value gains of $8.9 million. Out of the fair value gains in property recorded in 2013 of $8 million, $6.3 million related to property re-zoning from residential to commercial property.
Life Business
First Mutual Life Assurance Company
Gross Premium Written closed the year at $28.1 million, being 26% higher than the prior year figure of $22.3 million. Employee benefits premium of $15.3 million was 21% higher compared to the previous year’s premium of $12.6 million due to single premium income and new business written during the year. Individual life premiums increased to $12.8 million (2012: $10.1 million) due to an increase in uptake of products, particularly funeral products.
FMRE Life & Health
Gross Premium Written grew by 10% to $1.96 million (2012: $1.78 million) with health business contributing 66% of the gross premium written whilst Group life contributed 27% and individual life business contributed 7%. Regional business contributed $940,000 (2012: $186,000) to gross premium, with the business continuously seeking ways to further increase the gross premium written from the region in 2014.
Medical Business
FML Health Care Company
FML Health Care Company premium income grew by 19% to $43.1 million (2012: $36.3 million). The growth is attributable to a 36% increase in membership from 79,242 at the beginning of the year to 107,796 members at year end. The average revenue per member dropped from $40 to $38 as some members downgraded their membership plans due to liquidity challenges. The claims ratio rose from 68% in 2012 to 80% in 2013, contributing to the reduction in operating profit from $6.4 million to $1.9 million in 2013.
The Company will continue to seek new business through providing quality service, demonstrated claims paying ability, wellness campaigns, innovative products and affordable pricing to its members.
Short-term Insurance Businesses
Tristar Insurance Company
Gross Premium Written decreased by 24% in 2013 to $6.8 million (2012: $9.0 million) as the company adjusted its operations from its legacy issues. The motor class continued to be the most significant contributor in terms of gross premium (62%), followed by fire (16%) and accident (9%).
The Company has adopted strategies to grow its business through strengthening broker relations, enhancing service delivery and providing relevant risk management advice.
FMRE Property & Casualty (Zimbabwe)
The business experienced a 14% growth in gross premium written to $20.1 million (2012: $17.6 million) as major cedants renewed their confidence in the company. The major growth contributors were the increased fire and farming business, with treaty business contributing 42% (2011: 42%). This growth was achieved despite cedants raising their retention limits.
FMRE Property & Casualty (Botswana)
The business witnessed a 80% jump to $2.7 million in gross premium written (2012: $1.5 million) following the recapitalisation of the business in December 2012. The casualty, engineering, motor and fire classes were the largest contributors to gross premium. Local business accounted for 60% of the total gross premium whilst non-Botswana business contributed 40%. The annual growth was a result of growing market confidence and increased marketing efforts, resulting in more acceptance in the Botswana market.
LICENCING
The Group successfully applied for an investment management licence and the new business will start operations in the second quarter of 2014. Regulatory approval was also granted to merge the two reinsurance businesses operating in Zimbabwe, under a composite licence. The synergies to be realised from such an arrangement will lead to a stronger reinsurance balance sheet that can attract more business from both local and regional insurance operations.
NAME CHANGE
At the Annual General Meeting held on 4 June 2013, a resolution was passed to change the name of Africa First Renaissance Corporation Limited to First Mutual Holdings Limited.
HUMAN CAPITAL DEVELOPMENT
The Group is going through an organisational transformation that is expected to result in optimum operating structures aimed at enhancing operational effectiveness and efficiency.
DIRECTORATE
Mr Innocent Chagonda resigned from his position as Non-Executive Director and Chairman of the Board with effect from 4 June 2013, the day I was appointed Chairman. On behalf of the Board, I would like to extend my sincere thanks to Mr Chagonda for his invaluable contribution to the Group.
DIVIDEND
Having taken due regard for the Group’s cash flow requirements, the board of directors recommend a dividend of 0.1 cents per share to be paid on or about 30 May 2014 to shareholders registered in the books of the Company as at 2 May 2014. The transfer books and register of members will be closed from 3 May to 6 May 2014, inclusive.
OUTLOOK
Increased business confidence and an improvement in the liquidity situation in the market are essential to ensure a stable operating environment, which will improve the economic recovery of the country.
Going forward the Group will improve risk management through enforcing the actuarial control cycle, active management of trade receivables and continuously reviewing the product portfolio to keep the products relevant and affordable. The Group will continue with its stringent risk assessment approach for money market investments with deposits being placed with stable banking counterparties and equity investments being made into entities that are considered resilient.
APPRECIATION
On behalf of the Board, I would like to extend my gratitude to fellow Board members, the Regulators (Insurance and Pensions Commission, Securities and Exchange Commission of Zimbabwe, Zimbabwe Stock Exchange and the Reserve Bank of Zimbabwe), Clients, Partners and other Stakeholders for their role whilst interacting with the Group. In addition, my appreciation goes to all Group employees and subsidiary board members for their commitment in steering the Group during the past year.
Oliver Mtasa
Chairman
21 March 2014
