Report by the Short-Term Insurance General Manager – Finance Matters
2020 was an extraordinary year and we have all had to adapt to a new paradigm. The COVID-19 pandemic (“COVID-19“) brought new challenges and uncertainties. OSTI implemented numerous measures to minimise the impact of COVID-19 and to ensure that it maintained a strong liquidity position in response to varying economic conditions. The continuous review of existing contingencies and recovery plans was necessary to ensure OSTI’s operational efficiency.
OSTI continues to experience no disruptions to its operations as all staff members continue to work remotely. OSTI took appropriate measures to migrate all its information and communications technology systems onto a cloud platform to ensure secured access and business continuity. The rapidly changing and uncertain circumstances brought about by COVID-19 require great agility to mitigate and manage inherent post-COVID-19 risks.
PricewaterhouseCoopers Inc. continued in office as auditors for the financial year ended 31 December 2020. The financial statements have been prepared in accordance with the International Financial Reporting Standards and the requirements of the Companies Act, 71 of 2008.
The 2020 Annual Financial Statements were prepared on a going concern basis. The Board of Directors and management have reviewed and assessed OSTI’s liquidity and financial position to ensure that there is sufficient funding to sustain its operations, meet its financial obligations and execute its mandate. We are not aware of any material uncertainties related to events or conditions that may cast significant doubt on OSTI’s ability to continue as a going concern.
Copies of the approved and audited 2020 Annual Financial Statements will be distributed to our members on request.
OSTI entered into a “soft” amalgamation with the office of the Long-term Insurance Ombudsman with effect from 1 January 2020. Both offices continue to operate as two separate entities and continue to be separately responsible for the collection of revenue and the discharge of costs incurred by each office as per the Shared Services Agreement.
OSTI remains financially sound with all members settling their outstanding debts in full for the financial year ended 31 December 2020. We would like to extend our gratitude to all our insurer members for their continued support and contributions.
The debtors’ collections are timeously monitored and we are not aware of insurer members whose businesses have been adversely impacted by COVID-19 causing an inability to settle their outstanding accounts.
OSTI identified measures for controlling its budget, such as increasing cost savings, which resulted in the actual expenditure for 2020 being below budget. OSTI’s financial position at year-end was solid and it has no immediate financial concerns at this stage; it should be able to continue meeting its anticipated contractual and financial obligations in the foreseeable future.
OSTI recorded a revenue of R48.0 million for the year, an increase of 6% compared to 2019 (R45.2 million). The favourable variance is mainly attributable to the increase in the fee income, the penalty income and the increase in the number of registered complaints.
The fee income is recognised over time based on when a complaint is closed or based on the three-year average time that it takes to close complaints. The annual fee per complaint increased from R4 300 in 2019 to R4 400 in 2020. The penalty fee of double the current fee is charged to insurers for delays in resolving matters.
A total of 11 095 complaints was registered in 2020, representing an increase of 7% compared to 2019 (10 367). COVID-19-related complaints account for 7% of all the complaints registered in 2020, that is a total of 786 complaints, with 562 relating to business interruption insurance and 224 to travel insurance.
OSTI recorded R41.7 million in operating expenditure against the annual budget of R46.5 million in 2020. The favourable variance is as a result of the implementation of cost-saving measures as some of the expenses were cancelled due to COVID-19 and the lockdown. A surplus of R7.1 million for the year was recorded compared to R3.5 million in 2019. OSTI’s financial position has strengthened mainly due to reduced expenditure and to an increase in the revenue. We will continue with cost management measures to ensure that OSTI remains efficient and sustainable.
The cash and cash equivalents increased to R29.6 million in 2020 compared to 2019 (R20.6 million). OSTI has various cash management procedures and processes in place. The capital structures of OSTI consist of debt, cash and cash equivalents and retained income as disclosed in the statement of financial position.
Cash flow scenario planning, with middle and end estimates, is in place to enable OSTI to adjust to changes in the environment that might evolve over time. We will continue to review our cash flow forecast and adjust to changes in the economic environment.
The Board and Audit and Risk Committee ensure that OSTI implements effective policies and plans for risk management to enhance its ability to achieve its strategic objectives. The management of risk and accompanying controls is monitored throughout the company to mitigate and maintain an acceptable level of risk.
The Board of Directors established a COVID-19 Crisis Committee to monitor the impact of COVID-19 on OSTI’s operations, financial position and the health and well-being of staff. The Committee oversees and responds to emerging risks with the main objectives of ensuring OSTI’s sustainability in serving its stakeholders and OSTI’s relevance. The Committee continues to meet regularly and to strenuously debate issues with management and engage with staff.
The finance team would like to thank these committees for their valuable input and contributions during these challenging times.
Land Bank Insurance SOC Limited’s application for membership was approved in June 2020.