Fidelity Life Assurance of Zimbabwe Limited (FIDL.zw) HY2019 Interim Report

We have extracted the Chairman’s Statement from the 2019 half year report for Fidelity Life Assurance of Zimbabwe Limited (FIDL.zw), listed on the Zimbabwe Stock Exchange:

It is my pleasure to present to you the condensed consolidated results of Fidelity Life Assurance of Zimbabwe Limited Group for the half year ended 30 June 2019.

Economic landscape

The announcement of the policy reforms in the fourth quarter of 2018 saw an increased volatility surfacing on various economic fronts. This was fuelled by panic responses to the markets’ interpretation of the announced separation of the Nostro Foreign Currency Accounts (FCA) from Real Time Gross Settlement balances (RTGS) as well as the introduction of the intermediated money transfer tax. Subsequently in February 2019, the Reserve Bank of Zimbabwe pronounced a Monetary Policy statement which then created RTGS dollars as the transacting currency for Zimbabwe effective 22 February 2019 and established an interbank foreign exchange rate. This was followed by the issuance of two
Statutory Instruments:

  • SI 32 of 2019 – Exchange Control Act (Amendment) Regulations, 2019 no.6 and
  • SI 33 of 2019 – Presidential Powers (Temporary Measures);-Amendment of Reserve Bank of Zimbabwe Act and Issue of RTGS Dollars Regulations, 2019.

As a result, the operating environment for this reporting period has remained challenging and has seen foreign currency shortages as well as increased volatility in an upward trajectory of interbank foreign exchange rates since the announcement of Statutory Instrument 142 of 2019. Inflation rapidly increased in the second quarter due to sharp depreciation of the local currency.

Prescribed Assets Compliance Regulation

The 2019 budget review unveiled an upward review of the prescribed assets ratio thresholds for life insurance and pensions industry from 7% to 15% and 10% to 20% respectively, with full compliance expected by 31 December 2019. Prescribed assets are financial instruments that governments use to mobilise financial resources from the insurance industry for national development purposes, for example in infrastructure development. In normal and stable economies, such instruments are considered secure and risk free. If correctly structured, they provide a safe asset class and a reasonable match for policyholder liabilities. Historically, as happened in 2018, in a high inflationary environment, non-inflation linked Prescribed Assets tend to destroy value. We therefore urge the Ministry of Finance and Economic Development to consider introducing inflation indexed bonds or waive compliance pending stabilization of the economy. Amid growing fears of the re-emergence of hyperinflation, preservation of policyholder and shareholder funds continue to be a key focus area for the Group by ensuring the continued skew towards property, as a proven store of value.

Financial performance

Total revenue grew by 143%, closing the half year at ZW$62.5M, compared to ZW$25.8M achieved over the same period last year. Revenue growth was largely driven by fair value gains on the Group’s property and equity investment portfolios. Whereas an interim revaluation of properties was previously not performed for half year reporting, the macro-economic developments noted during the half year to 30 June 2019 necessitated this assessment. This resulted in fair value gains of ZW$29.9M being recorded on properties. The equities portfolio recorded gains of ZW$4.1M, compared to a loss of ZW$1.2M recorded in the 6 months to 30 June 2018. Revenue was also boosted by profits from disposal of construction equipment which resulted in a 392% increase in other income, from ZW$0.9M to ZW$4.7M. The Group’s premium income increased 84% to ZW$16.6M, from ZW$9.1M in the period to 30 June 2018. A key contributor to this result was the Malawi business. The micro-finance business also grew its interest income, recording an increase of 136% from ZW$1.5M as at 30 June 2018 to ZW$3.6M in the current half year. Revenue from sale of stands was negligible as expected due to the Southview development project having reached its tail end.

A provision for re-estimated project completion costs for Southview offsite works was a major contributor to the 162% increase in total expenses. The contract value was adversely affected by the developments noted in the macro-economy following the pronouncement of SI 133 and SI 142. The re-estimation of the project completion costs resulted in a ZW$22.8M charge to the income statement. The significant gains reported from fair value and exchange rate adjustments resulted in a 237% increase in gross change in insurance and investment contract liabilities, which increased from ZW$5.1M to ZW$17.1M in the current half year. Other expenses grew largely due to inflationary pressures and the exchange rate impact on the operating results of the Malawi business. The Group closed the half-year with a profit before tax of ZW$4.6M, against a comparative of ZW$3.7M, reflecting a growth of 24%.

Operations

Achieving superior customer experiences through technology The group continues to focus on its digitalisation strategy of providing a superior customer experience. During the course of this half year we have made several strides in achieving this goal. We have introduced several platforms that will make the customer journey more enjoyable.

Customers are now able to conduct business with us on various online and electronic platforms. Payments are now made via the online payment platform “Fidelity”, which permits clients to pay from anywhere for their products and services. In addition, the Group launched “WhatsApp for Business”, and now Fidelity Life customers can communicate with us through this cost effective service making us more accessible to our clients.

Repositioning of the Fidelity Life Brand

It is part of our 2019 strategy to refocus our attention on our brand and it’s positioning in the market. To this end Fidelity Life signed an agreement with the Premier Soccer League of Zimbabwe making Fidelity Life the official life and health partner to the league. This initiative has seen the Group offer life cover, funeral cover and medical support to all the players in the league. The agreement has seen our brand grow in terms of awareness and affinity in our target market; further this has opened up additional markets for the Group to sell its products and services.

New Products

Fidelity Life Assurance launched a first in Zimbabwe Funeral Cash Back Product that offers customers cash back after five claim free years. The product was launched in May 2019 as a response to customer outcry to get something back from their policy before death, and is our way of offering customers more value for their money. This reiterates our commitment to offering our customers products that speak to their needs. The Group continues to make positive strides on its journey towards becoming a holistic financial services provider. We remain cautiously optimistic about the future.

Dividend

Due to the need to preserve internal resources to fund the Group’s growth strategy, the Board resolved not to declare a dividend.

Economic Outlook

The country is implementing a number of policy reforms aimed at strengthening fiscal sustainability, reducing inflation and promoting a flexible exchange system as a foundation for sustainable private sector-led economic transformation. In the short to medium term, the local currency is expected to remain under pressure and lose further ground against the United States Dollar (USD) due to depressed mining and manufacturing output, limited access to external financing and the low level of international reserves. With the economy indexing pricing to the USD, high inflation is forecast to persist in the short term. Traditional investment markets are expected to continue yielding negative returns making value preservation a top priority for the insurance industry. Overall, the performance of the mining sector and agriculture sector are key to the country’s economic recovery. The power supply woes are impeding growth of the mining sector, while the normal to below normal rainfall expected in the second half of the 2019-20 season poses a threat to the performance of the agriculture sector.

Corporate governance

There were no changes to the board of directors during the half year ended 30 June 2019.

Appreciation

The unwavering support of the Group’s shareholders and policyholders forms the pillar on which the Group’s success is anchored. I express gratitude to management, staff and my fellow directors for their continued dedication to re-establishing the brand as a top brand. Our other stakeholders continue to extend invaluable support and this is greatly appreciated.

F. Ruwende
Chairman