UAP Holdings cuts off high-risk accounts in de-risking strategy

UAP Holdings has began cutting off high risk accounts from its business portfolio, after the cost of compensation weighed hard on the group’s profitability in 2018.

Chief Executive Officer to the UAP Group Peter Mwangi says the insurer will maintain a strict policy in its underwriting of insurance premiums, this as part of ongoing efforts to minimize on its exposure to risks.

“We are convinced that a way to build a business that is sustainable in the long-term is to have the basics of running a good insurance business in place which mainly entails having proper underwriting and risk pricing,” he said.

Mwangi, who spoke on Tuesday during the firm’s investor briefing of its 2018 financial performance, said the insurer had already began putting in place updated risk profiling tools while ensuring new businesses comply with the set standards.

The evolving strategy has already began taking effect, signaled by a slowdown in gross underwritten premiums which reduced marginally in 2018 to 18,770 from 19,111 in 2017.

The focus on de-risking by UAP Holdings has been prompted largely by rising impairment costs, which in part contributed to the firm’s slump in profitability as the group announced Ksh.518 million net loss from a profit of Ksh.1.2 billion in 2017.

UAP for instance lost up to Ksh.400 million from the collapse of Bank M in Tanzania and the fall of the Athi River Mining Company (ARM) which currently sits in administration.

The firm further set aside Ksh.780 million during the last financial year to loan-loss provisioning under the IFRS 9 accounting and reporting standard while employing a further Ksh.342 million to its restructuring process, completed in June 2018.

Moreover, the insurer was exposed to write-downs in the valuation of its property in both its South Sudan and Kenyan markets to the tune of Ksh.604 million and an additional Ksh.478 million from 2018’s free-fall of the equities market in Kenya.

Further to the de-risking strategy, the insurer is keen on growing on its life insurance portfolio in comparison to its general underwriting business in a move to tame short term risks to its general insurance business, associated largely with the ongoing volatility across its 5 markets in the East African region.

According to UAP General Manager for Insurance David Kuria, the firm will pursue a balanced mix of both general and life insurance to guarantee a consistent return to shareholders in the long-term.

“The growth in life business has been encouraging year-on-year to give a stable return to shareholders. This growth is primarily anchored on investment in distribution and product innovation. We continue to pursue the investments to drive the penetration of our life business,” he said.

The combination of risk mitigation and cost effective strategies is expected to guide the UAP Group back into profitability to reverse the massive dip in earnings for the insurer as has been the case with its peers who include Britam Holdings and Sanlam.

“We are pursuing a more prudent approach to reserving to take up a more conservative methodology across both the general and life business even as we continue face a worsening of the claims experience in some of our markets,” UAP C.E.O. Peter Mwangi added.