13 November 2009
The Motor Vehicle Accident Fund (MVA) reserves decreased by P400 million last year, thanks to the impact of the global financial crisis on local investments.During 2008, the Fund held 54 percent of its investments in the form of equities with a total of 21 percent of the investment assets held offshore.
Presenting the 2008 financial highlights to the media on Monday, the Fund's CEO, Cross Kgosidiile, said the poor performance of equities due to the financial crisis had a negative effect on the Fund's reserves which decreased from P1.5 billion in 2007 to P1.1 billion in 2008.Due to the reduced confidence on the market, the BSE also took a knock in 2008 as investors shunned risk and pulled out, weakening share prices in the process, Kgosidiile pointed out.
"Global equities fared badly for the year, given the uncertainty that prevailed as a result of the worldwide financial crisis and the global economic slowdown," he said. "On the local front, financial stocks were hardest-hit with BIHL losing 49.7 percent for the year.FNBB lost 25.9 percent while Barclays lost 19.9 percent."
On a positive note, Kgosidiile said the performance of the equities was expected to improve in 2009, resulting in a positive growth in reserves. During the year, the MVA Fund recorded a surplus of P166.2 million compared to P62.7 million in 2007. The positive performance was attributable to the combined effect of increases in total operating income and lower total costs.
Net fuel levy increased marginally from P71.8 million in 2007 to P72.5 million in 2008. The Fund also introduced third-party insurance cover on foreign-registered vehicles the collection of which started on October 1, 2008.
Total investment income increased by 92.5 percent from P92.5 million in 2007 to P178.1 million in 2008 due to higher interest and dividend received. In addition, the Fund recorded exchange gains of P69.5 million on offshore investments.
Kgosidiile also reflected on costs: "The Fund's costs are mainly claims compensation and administration expenses," he said. "During the year, total costs reduced significantly from P101.7 million in 2007 to P87.1 million in 2008 due to the reduction in net claims provision from P76.6 million in 2007 to P56.3 million in 2008."
Administration expenses increased by 22.7 percent from P25.1 million in 2007 to P30.8 million in 2008 due to inflationary pressure and the expansion of the Fund's services to improve service delivery. The Fund has, however, exercised due care to ensure that expenses are maintained within acceptable levels."
In the period under review, total assets declined from P2.0 billion in 2007 to P1.9 billion in 2008 due to difficult trading conditions pertaining to both local equities and offshore investments.
Non-current assets decreased by 18.4 percent from P1.5 billion in 2007 to P1.2 billion in 2008. Current assets increased by 22.2 percent from P542.7 million in 2007 to P663.2 million in 2008. By comparison, non-current liabilities increased by 16 percent from P159.1 million in 2007 to P183.3 million in 2008 as a result of increases in trust liabilities.
Current liabilities increased by 25 percent from P78.9 million in 2007 to P98.6 million in 2008 as a result of increases in outstanding claims and accounts payable while total liabilities increased from P238.0 million in 2007 to P281.9 in 2008.
Kgosidiile said this increase was expected, given the move away from a fault-based system and the inclusion of government vehicles in the revised law. "We expect that this increase in liabilities will stabilise from 2009 onwards," he said.
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