ZHL considering currency hedging to preserve capital

LISTED insurance group Zimre Holdings Limited (ZHL) is considering currency hedging to minimise exchange rate losses and protect shareholder value against depreciating currencies in its key markets, the company said.

By Taurai Mangudhla

This comes after the group, which has operations around Africa, suffered a US$1,3 million loss in the half year to June 30 2016 from US$321 456 last year due to exchange rate differentials.

“In addition, the group is also actively considering currency hedging options to protect shareholder value against depreciating currencies in our key markets,” chairman Benjamin Kumalo said in a statement attached to the financials.

To initiate the currency hedge, a company has a number of options including entering into an agreement with one or more investment dealers to sell the foreign currency forward though what are termed forward agreements.

Zimre sees prospects in the domestic market where the group derived 66% of its total revenue in the first half of the year, prompting management to implement various measures to preserve capital and consolidate its core business.

In the period under review, Zimre reported total comprehensive income of US$813 777, down from US$1,2 million prior year.

Total claims and expenses, however, went down by 14% on prior year to US$26,6 million.

Gross premiums written slid 8,3% to US$38,4 million, while total revenue also went down 10,2% to close the first half of 2016 at US$29,18 million.

Kumalo said the decline in gross premiums written was in line with market-wide contraction in domestic insurance business and a reduction in the contribution of regional operations conducting business in environments with weakening domestic currencies against the US dollar.

“In spite of the difficult economic environment in the local market, the group recorded improvements in the bottom line performance following recapitalisation in 2015,” said Kumalo, adding the restructuring that followed the capitalisation process boosted business confidence.

Kumalo said the group’s reinsurance business’ gross premiums declined from US$16,7 million in the first half of 2015 to US$15,28 in 2016 mainly due to depreciation of regional currencies. The reinsurance unit reported an operating profit of US$0,76 million up from a US$1,2 million loss prior year due to a reduction in operating and administrative expenses.

The reassurance business’ gross premium was 27% below prior year mainly due to shrinkage in life and pensions business while the general insurance side’s gross premium remained flat on last year.

ZHL’s property business reported a 15% decline in operating profit as revenues dwindled due to underperformance of rental revenue.