Poor performance of top counters at Nairobi Securities Exchange is taking its toll on insurance and investment firms, with Britam issuing a profit warning for the year ended December 31.
In a public notice yesterday Britam, which commands 25.4 per cent of total market share according to Insurance Regulatory Authority (IRA), said it is expecting financial results for 2018 to decrease compared to same period in 2017.
“Britam Holdings wishes to inform shareholders, potential investors and general public that based on preliminary assessment of the forecasted financial results for 2018, earnings for the company are expected to decrease by at least 25 per cent compared to 2017,” the noticed read.
The listed insurer attributed the expected decline to poor performance of the stock market which has led to reduced returns from equity investments and tough operating environment during the year under review.
Last year, Britam took loss from various investments in cash-strapped firms like HF Group which also issued a profit warning for its 2018 financial results.
Last year, Britam lost nearly Sh4 billion in paper wealth following HF’s poor performance at NSE where its share sunk to 15- year low. Yesterday, the share sunk further to close at Sh5.70, 10 cents lower compared to Wednesday.
Sanlam Kenya’s financial position was also tilted after Athi River Cement’s poor performance saw it put under administration.
The insurer was forced to write of Sh574 million in ARM cement, sinking to a net loss of Sh1.53 billion in the six-month period, compared to a Sh90.53 million net profit in the same period in 2017.
Mombasa based financial risk and investment expert Mihr Thakar warns that investment firms should prepare for the worst if the poor performance at NSE especially for blue chip counters witnessed in 2018 persists. He said most firms invest in blue chip company shares, which have lost 23.7 per cent in 2018, being its worst yearly drop in six years.
“Insurance firms are therefore very lamblike to market volatility, exacerbated by the fact that they cannot easily exit their relatively large stakes in listed companies, since larger lot sizes tend to affect market prices,” Thakar said.
He said that Insurance business, which primarily involves managing risk in regard to paying claims based on historic data and forecasts, is highly dependent on investment income.
He added that the market is repulsing recently ramped up taxes which are tempting the Laffer Curve and a legislation induced credit crunch that has confined private sector credit growth to a technical resistance level of less than five percent, once being in double digits.
The benchmark NSE20 index has been on a downtrend since 2013, shedding 43 per cent from 4926.97 to 2796.72 over the period.