Pan Africa Insurance Holdings Limited ( 2018 Annual Report

We have extracted below the Chairman’s Statement from the 2018 annual report of Pan Africa Insurance Holdings Limited (, listed on the Nairobi Securities Exchange:

Global economy

The global economy showed signs of flattening during the year, with the World Bank reporting that growth declined by 0.2 percent to 3.7 percent in 2018 and sparked fears that some leading economies have reached their peak. Signs of a slowdown were exacerbated by the trade tiffs that characterized relations between two of the world’s leading economies: China and the United States of America. Although the tension eased somewhat following negotiations between them, fears that tit-for-tat tariff barriers may continue being effected remained. At the same time, protracted negotiations surrounding the Brexit also contributed to uncertainty about growth prospects, not only in the UK and European Union but also among UK’s key trading allies.

In sub-Saharan Africa, growth remained muted at 2.7 percent, nevertheless a slight improvement from the previous year’s average of 2.3 percent. Although this pace was slower than expected, optimists concur that 2019 will augur well for the region as commodity prices recover progressively.

Operating environment

The year 2018 was fraught with myriad challenges that negatively affected businesses, leading to operational hiccups that affected their overall performance. Having emerged from a highly contested presidential election in 2017, Kenya’s volatile macro-environment posed a big challenge to the business community and especially stifled the insurance sector’s growth.

Despite these challenges, the country’s GDP growth remained robust at 6 percent while inflation leveled in single digits, buoyed by sufficient food supplies across the country, mitigating the electioneering lag effects on national productivity.

The interest rate cap on commercial banks remained in effect, leading to a subdued business environment characterized by a strong credit squeeze, especially for small and medium firms. Clearly, the anticipated credit

2018 was fraught with myriad challenges that negatively affected businesses, leading to operational hiccups that affected their overall performance. growth in these sectors did not materialize. The rate cap has not worked.

During the year, and despite the trading and operational difficulties businesses experienced, we saw a renewed commitment by the government to implement essential macro-economic policies designed to spur business recovery and rebuild confidence in the economy.

Business Operations

Our customer base missed the anticipated growth pace due to a general slowdown in insurance uptake across the board in the midst of an economy that struggled to perform optimally. At the same time, the industry’s growth was heavily affected by regulatory changes covering insurance companies’ capital adequacy and risk-based supervision. Implementing these changes strained the industry and led to a generally depressed performance. The new rules also include a shift in the formula used to provision for liabilities using Gross Premiums Valuation 20 percent on Risk Margin led to a substantial book loss for us, and, indeed for the entire industry. If the laws are revised, we believe overall performance in the coming year will improve.

Though the changes are well meaning and will result in a stronger, more vibrant insurance sector the Insurance Regulatory Authority is still grappling with achieving a harmonious balance between implementing the capital adequacy ratios and risk-based supervision while mitigating potential industry instability. Implementing these changes has posed some challenges. However, the industry has made recommendations to the Insurance Regulatory Authority and expects a positive resolution.

Fraud is an industry wide problem that continues to reduce operational profit and erode shareholder returns. We now vet claims more stringently to weed out unscrupulous ones. Vetting is necessary though it may slightly lengthen the period leading to settlement, but we believe this is the price that we must pay to deal with fraud instances. We remain committed to ensuring that our customers receive exceptional service.

Our focus is to strengthen internal processes and controls to plug gaps that may give rise to fraudulent claims or loss-making investments without stifling decision-making processes that are essential to our business. It is important that we find a balance between watertight processes and procedures and a clean claims settlement record as well as investment decisions. During the year, we made prudent and substantial provisions for some investments we previously made in a number of distressed companies. We, however, continue to pursue recovery efforts on all these businesses.

Business Management

During the year, the Board of Directors recruited Mr. Patrick Tumbo to be the new Group Chief Executive Officer charged with steering this business forward and pump it with the growth impetus it needs for us to pursue our mission to build shareholder value.

Mr. Tumbo is a leading insurance executive who has held senior positions in the industry and understands our business very well. Given his extensive experience, leadership and implement policies and processes that will ensure our operations are geared towards building shareholder value. He is expected to motivate employees, bring out the best in them and give them leeway to make the right decisions while sealing gaps which may be encouraging unethical business practices. Since we had a lean year in 2018, we need to recover lost ground by setting in place the building blocks that will get us back on track in our strategic plan and reposition us as a major provider of life and general insurance, and in the process grow shareholder value. At the Board, we also expect Mr. Tumbo to take care of all stakeholders, from customers, employees, government and various partners within the supply chain.

Focus on business growth

We have reinvigorated our focus to grow the business, particularly emerging from challenges that led to a depressed performance in 2018 and are determined to instill efficiency and ethical practices as key operations hallmarks. Having been in business for well over a century, we reassure our stakeholders that we are here for the long haul and that we are committed to growing the value they derive from their investments. With this in mind, we are re-evaluating our entire investment processes and systems, reviewing the code of business practice and reinvigorating stakeholder engagement to embed excellence in our business DNA.


In Kenya, insurance penetration, at about 3 percent, is still very low. We see this as a latent potential for business growth when we offer a great customer experience and responsive product range. Fortunately, as part of the Sanlam group, we have a global presence that serves as a fountain from which we learn about best practice as we strive for local customer excellence. There are also new opportunities that are emerging, including oil and gas extractives, in which we believe we are primed to play a leading role. Kenya’s demographics have changed dramatically; we are now a more youthful country where 75% percent of Kenyans are under the age of 30. This presents us with an opportunity to tap into this market, use new media and channels for our products, earn their trust and tailor products that are aligned with their aspirations.


While we welcome competition in the sector, an unhealthy, yet growing drive to undercut premium prices is fast becoming the bane of the general insurance sector. Although the law is very clear on the premiums chargeable and commissions payable, some players choose to gain an edge by ignoring the law. The law is honoured more in its breach than observance. We urge the regulator to enforce these laws to bring order to the industry.

Corporate Governance

Sanlam embraces good corporate governance practice because it is a core part of our ethos. We present ourselves as a trusted partner to our stakeholders. This is what we are known for.

At the board, we have created structures to ensure our operations are transparent, that we adhere to all laws and regulations of the country and that our work is guided by a clear focus on the end goal: creating shareholder value, ethically. We shall always strive to be a model corporate citizen. We also have an all rounded board that is diverse in experience, age, profession, and gender, providing the necessary guidance and support to the management of the company.

During the year, three new directors joined the board: Cornie Foord, Freda Britz, and Nelius Bezuidenhout. They collectively bring a wealth of experience and knowledge drawn from their various disciplines to highly enrich the team. We welcome them aboard.

In conclusion

We may have gone through a difficult year in 2018 but I believe that the future is full of promise. We are now well positioned to carve a niche for ourselves in the insurance sector, with the ultimate goal of enhancing shareholder value through a focus on excellent customer experience. I wish to once again thank the Group CEO for the enthusiasm he has shown in his new role; our customers for trusting us; shareholders for their continued faith; management and staff for keeping it ‘The Sanlam Way’ and to all stakeholders who have supported us. We appreciate you all. Let us all together walk to a promising future.

Dr. John P.N. Simba, OGW, MBS, EGH.