PRESENTATION ON COST MANAGEMENT

APPROACHES

Presented by

Okurapa samuel (Chief finance officer)

MANAGING COSTS & EARNINGS

Grow Premium Or

Revenue

Restructure expenses

or

Reduction in costs

Profitability

(EPS)

Dividends Pay

OUTLINE FOR THE PRESENTATION

Background

Management of Litigation costs

Trailing costs per loss assessors

Managing repair and maintenance costs

Employee or staff costs management

Adherence to regulatory commission rates

Analysis of marketing costs

Management of receivables

Background & key definitions Sonarwa General insurance company has in place

an approved strategy for implementation as its

driving tool for the management of costs and

rejuvenation of its business lines.

The company therefore, has to address its costs

either through the restructuring of its process to

eliminate non relevant costs and maintain

processes lean to enable efficiency in operations.

Sonarwa may also aim at identifying and analyzing

such movement in costs on quarterly basis to

allow timely cost reduction

Litigation costs

Managing the approved claims

We as management, need to ensure claims as approved and already agreed

upon with claimants are well managed. Prioritization is key in controlling

deterioration to litigation in this, we are able to mitigate on the risk of paying

Court awards so costly than would be.

Bailiff costs

Lawyer’s expenses

Legal staff time

Formidable measures

1 2 3

2015 2014 2013

68,059 85,989 164,659

LEGAL AND PROFESSIONAL COSTSYear Amount '000 (RWF)

TRAILING COST PER LOSS ASSESSOR

Trailing of claims handled by each of the claim assessor

allows as to measure the effectiveness and performance of

each of them and plan for effective development of skills or

call for HR involvement.

0

20000

40000

60000

80000

100000

120000

LOSS ASSESSOR MONITORING

Series1 Series2 Series3

Repairs and mantainence

Year

Amount '000 (RWF)

0

50000

100000

150000

200000

1 2 3

2015 2014 2013

68,059 85,989

164,659

Year Amount '000 (RWF)

Repairs and maintenanceThere is need for the finance to re examine the cost

category ensure that they are properly defined:-

Capital expenditure (IAS 16)

Expense to (IS) IAS 1

Strict adherence to budget allocations

Procurement SLA with long-term suppliers

Evaluation of service providers

Routine audit of services provided

EMPLOYEE COSTS

The company employee costs in relationship to the revenue generated is

highlighted below;

2012 2013 2014 2015

1,585,111

1,980,623 2,070,703

1,899,784

0

500000

1000000

1500000

2000000

2500000

1 2 3 4

STAFF COSTS GRAPH IN RWF '000

Year Staff costs

Net premium earned analyzed

2012 2013 2014 2015

5,696,860 5,915,827

5,247,491

6,124,766

0

1000000

2000000

3000000

4000000

5000000

6000000

7000000

1 2 3 4

NET PREMIUM GRAPH

Year NET premium

PERCENTAGE OF STAFF COSTS TO NET WRITTEN PREMIUMS

28%

33%

39%31%

2012 2013 2014 2015

STAFF COSTS AS % OF TOTAL COSTS

Year Staff costs Total costs %

2012 1,585,111 2,547,849 62%

2013 1,980,623 4,026,830 49%

2014 2,070,703 3,459,838 60%

2015 1,899,784 3,075,904 60%

Averaging premium income per employee

No.

Average No of staff 01-01-15 123

31-12-15 118

Average No in 2015 120.5

Net premium 2015 6,124,766

Average annual income per employee 50,828

Daily revenue per employee in 2015 139

Daily average revenue to achieve budgeted for

2016 (Rwf)’000 273

STAFF COST RESTRUCTURING Devising control over the medical cost system

Control over budget and quarterly examination of

budget over actuals

Reprimand over budget indiscipline for budget

holders

Reviewing the department structures for

alignment and skewing of responsibilities.

ADHERENCE TO COMMISSION PRESCRIBED RATES

Management understands the need for business acquisition costs

to be paid however this must be maintained at regulatory

minimums.

Commissions to be negotiated at the contract level and clearly

specified for industry compliance

No underwritten premium must attract two commission

payments totaling above thresholds.

Investigation and disciplinary practice commission paid on

direct business.

Commission payments strictly as computed by IES

Controls over system duplicated production

REGULATORY RATES

Bond investments 2%-4%

Short term contracts 10%-25%

Sonarwa policy figures

Specific for motor business brokers <15%

agents <12%

TRANSPORT & TRAVEL COSTS

1 2 3 4

Year 2012 2013 2014 2015

Amounts in Rwf'000 91,116 157,762 113,821 110,977

2012 2013 2014 2015

91,116

157,762

113,821 110,977

0

20000

40000

60000

80000

100000

120000

140000

160000

180000

Am

ounts

in m

illions

MANAGING TRANSPORT & TRAVEL

Hiring of vehicles and management of their usage is key to

addressing the costs attributed to it.

There should be a control register that profiles the

movement of the company cars and follow ups.

All marketing costs excluding commissions paid must be

detailed and analyzed vis -vie premium underwritten on a

monthly basis.

Cost ratio to the No. of marketers must be profiled to

premium per marketer on monthly basis so as to measure

value for money.

The company should also plan ahead of the year on the

board deliberations except for emergencies (EGM’s)

Management of receivables

Receivables related to premiums sold on credit result to the

costs that affect the profitability of the company and the

solvency ratios

All debtors above 6month are expected to be written off the

books of the company ,hence affecting the solvency ratios by

BNR

SONARWA has an approximate amount of 1bn as debtors

Direct insurance arrangements 575,810re-insurance arrangements 394,807

970,617

MEASURES TO LIMIT CREDIT

Invoicing when cash repayment schedule is known

Minimize credit sales by obtaining affront payments above 60%

Improve contract closes for no cash No. valid contract in place

Assess employees and branches on the amounts outstanding (KPI)

Clearly file relevant documentations for proper follow ups (KYC)

IES system must be configured to generate ageing list of debtors for EXCO

and per branch or agency and direct sales

Material debtors must be analyzed further to responsible individuals

The HR must link the above results for performance evaluation.

END OF PRESENTATION

Thanks for listening