Insurance group Britam has injected a further Sh660 million to shore up the liquidity of its wealth management fund in the year ended December 2023.
The new disclosure takes the Group’s total cash injection in the fund to Sh6.9 billion, taking the liquidity support closer to the Sh7.2 billion mark that represents the company’s provision for investment losses in the entity.
Britam Wealth Management LLP, a fund managed by Britam Asset Managers, ran into an asset-liability mismatch in 2020, forcing the Group to make the provision in anticipation of losses from the investment.
According to Britam’s finance director, Charles Kimani, the cash top-up is linked to the widening gap between the fund’s assets and liabilities following last year’s interest rates liftoff.
“The assumptions we had built about the recovery of the gap were highly affected by the macroeconomic environment with a significant increase in interest rates. The growth we had anticipated in the fund did not come through as expected, forcing us to go back to the drawing board,” he said.
The gap between the fund’s assets and liabilities widened in 2023 and it was forced to revalue its investment for mark-to-market changes. Mark-to-market is an accounting practice that involves adjusting the value of an asset to reflect the market value that is determined by what a company would get for the asset if it was sold at that point.
As of the end of December 2022, Britam had provisioned Sh7.2 billion as the investment loss from the fund and had paid up Sh6.3 billion as the respective cash injection to bolster the entity.
The asset-liability provision mismatch was computed as the present value of the future cash outflows expected but discounted for the company’s cost of capital.
Each year, Britam has been assessing the asset-liability mismatch at net present value to measure the appropriateness of provisions made and cash injected.
It is yet to detail factors that resulted in the wide asset-liability mismatch that drove the insurer and financial services provider into a notable loss of Sh9.1 billion in 2020.
The regional insurer does not, at the moment, anticipate the requirement for further provisioning/cash injection. “We believe we are getting closer to finding a final solution around the fund. We believe we won’t have to make any additional provision if the macroeconomic environment isn’t worse off,” added Mr. Kimani.
Last week, Britam doubled its net profit in the year ended December 2023 to Sh3.2 billion from Sh1.6 billion on improved insurance income and cost containment efforts.
By KEPHA MUIRURI