Blood on the Insurance Dance Floor - Prima Reinsurance sets the stage

In KPMG’s 2013 sector report on insurance, Zambia was poised to experience explosive growth in the insurance industry. The stars were aligned, GDP was on the up and business prospects for the 23 business registered as at October that same year looked set for a bloodbath for clients. Fast forward 2015, the macro environment evolved. Currency depreciated. Inflation rose. Not good ingredients for cooking up a storm in the insurance industry.

Prima Reinsurance being one of the few insurance companies to offer reinsurance, set itself up for a highly competitive battle for the souls of clients. However, light at the close of the year, saw the Minister of Finance sign a Statutory Instrument (SI 171 of 2015), revising the minimum capital requirements for the industry. Mergers anyone? Prime time for them. With the increase in the minimum capital requirements, this would increase the barrier of entry into this market leading some companies to seek alliances to remain competitive.   

On the frontend, business for Prima was being driven by protection against fire whereas on the tail end was capped off by aviation. This saw the company grow its gross premium income by 9% from 2014 to 2015. Operating cash flows also improved by 20% in the same period indicting the company’s aggression in the “bloody” market. EBITDA also improved by 21%.

Shareholders are smiling at the numbers in terms of how the management team sweats the company’s assets by a factor of 5. However, the macro head winds did shave off 10% on return on capital employed and equity. This lead to an 8% reduction in overall earnings for the company with management indicting a decision/discussion on dividend for 2015 to be conducted in 2016. Patience pays we guess.

In order to achieve competitive advantage in a bloody market, management of working capital is key. So far, in 2015, Prima has manage to steadily improve its working capital and has maintained it in positive territory over the last 2 financial years. This is indicative of a management team that wants to be prepared when they go and do battle in the insurance playing field. Although, note to self: key an eye on that quick ratio. Maintaining strong current assets to meet those current obligations boosts investor confidence in how you run the business.