HARARE — First Mutual Holdings delivered a sharp increase in first-half profit, but the headline 222% earnings growth masks a more mixed performance from its core insurance operations, with investment returns and property revaluations providing much of the group’s earnings uplift.
The financial services group reported profit after tax of US$19.8 million for the six months to June 30, 2026, compared with US$6.2 million during the same period last year.
However, insurance contract revenue increased by only 6% to US$92.8 million, while the insurance service result declined 7% to US$13.2 million.
The divergence highlights an increasingly important feature of First Mutual’s earnings: the group’s overall profitability is being supported significantly by its investment portfolio at a time when the underlying insurance franchise is facing higher claims costs and weaker service margins.
Investment gains drive earnings
Investment performance was the largest contributor to the improvement.
Net investment income increased 568% to US$13.7 million, from US$2.1 million a year earlier. Fair-value gains on investment property also rose sharply to US$13.8 million, compared with US$1 million in the corresponding period.
Together, investment returns and property revaluations generated approximately US$27.5 million during the first half, exceeding the group’s reported profit after tax.
The composition of those gains is significant because a substantial portion arose from changes in asset valuations rather than cash generated by the insurance business.
First Mutual recorded fair-value gains of US$8 million on quoted equities and US$3.9 million on unquoted equities, while its investment-property portfolio generated US$13.8 million in fair-value gains.
An investment analyst speaking to The Zimbabwe Financial Mail said investors should therefore distinguish between recurring insurance earnings and valuation-driven gains.
“The profit growth is impressive, but the quality of that growth matters. Investment and property gains can materially strengthen earnings and the balance sheet, but they are inherently more sensitive to market conditions and valuation movements than recurring insurance service income,” the analyst said.
Insurance business faces margin pressure
The group’s insurance operations produced a more subdued result.
Insurance contract revenue increased 6% to US$92.8 million, with health insurance revenue rising 17% to US$39.7 million and life assurance revenue increasing 19% to US$8 million.
Property and casualty insurance revenue, however, declined 4% to US$45.1 million.
Despite the overall increase in insurance revenue, the insurance service result fell to US$13.2 million.
The deterioration became more pronounced after insurance finance effects. First Mutual recorded a negative insurance finance result of approximately US$9 million, leaving net insurance and reinsurance performance at US$4.2 million, compared with US$12.8 million a year earlier.
That suggests that stronger premium generation has not yet translated into a corresponding improvement in underlying insurance profitability.
Health claims under pressure
First Mutual Health remains an important component of the group’s insurance franchise, but its claims ratio increased during the period.
The health claims ratio rose to 83.95%, from 82.15% previously.
Management attributed the increase to higher claims volumes, an expanding chronic-disease burden and greater claim frequency.
First Mutual Health nevertheless generated US$8.7 million in profit during the first half, substantially above the comparable period.
A healthcare-sector analyst told The Zimbabwe Financial Mail that the claims trend would be important for the group’s second-half performance.
“The issue is not simply whether health revenue is growing. The critical question is whether premium increases are keeping pace with utilisation, medical inflation and claims frequency. Sustained revenue growth without adequate claims control can compress margins,” the analyst said.
Investment property becomes a major earnings contributor
First Mutual’s investment portfolio has become an increasingly important component of its financial performance.
Investment property stood at US$150 million at June 30, compared with US$139.7 million at the end of December 2025.
The group also held US$55.6 million in equity securities measured at fair value through profit or loss and US$31.2 million in debt securities measured at amortised cost.
Total assets increased to US$306 million, from US$280.8 million at the end of 2025.
The US$13.8 million increase in fair-value gains from investment property was particularly significant, given that the comparable gain a year earlier was only US$1 million.
For shareholders, the property portfolio therefore represents both an earnings contributor and a source of valuation sensitivity.
Cash generation tells a different story
Operating cash flow provides another perspective on the quality of the earnings improvement.
First Mutual generated US$4.4 million in net cash from operating activities, compared with US$4.1 million in the first half of 2025.
That represents only a modest improvement compared with the US$13.6 million increase in reported profit after tax.
The difference is largely explained by non-cash valuation movements.
In reconciling profit to operating cash flow, the group excluded US$13.8 million in investment-property fair-value gains and US$12.3 million in equity-investment fair-value adjustments because those accounting gains did not generate cash during the period.
An analyst said the distinction was important for assessing earnings quality.
“Operating cash flow has not increased anywhere near as quickly as reported profit. That does not invalidate the earnings, but it demonstrates that valuation gains are playing a significant role in the headline result,” the analyst said.
Customers increasingly choose US dollar cover
Currency composition provides another indication of changing customer behaviour.
Approximately 89% of First Mutual’s revenue was denominated in US dollars during the first half, up from 85% a year earlier.
Management said customers continued to favour US dollar-denominated products because of the greater certainty surrounding the currency in which premiums and benefits are determined.
The trend also provides an important liability-management advantage for insurers operating in Zimbabwe.
Where future claims are expected to be settled in foreign currency, collecting premiums in the same currency can reduce currency mismatches between insurance assets and obligations.
The increasing dollarisation of insurance revenue therefore reflects both customer preferences and insurers’ efforts to manage currency risk.
The second-half test
First Mutual enters the second half of 2026 with two distinct earnings engines.
The first is its insurance franchise, where the focus will be on premium growth, claims management and improving the insurance service result.
The second is its investment portfolio, where equities, debt instruments and property valuations can materially influence group profitability.
The challenge for management is to strengthen the first engine without becoming excessively dependent on the second.
A business analyst told The Zimbabwe Financial Mail that the quality of future earnings would ultimately depend on whether the insurance franchise can convert revenue growth into recurring service profits.
“Investment gains can provide an important buffer and strengthen the balance sheet, but the sustainable value of an insurance group ultimately rests on the ability to price risk properly, control claims and generate recurring underwriting and insurance service earnings,” the analyst said.
Earnings quality under the microscope
First Mutual’s first-half results therefore present two contrasting narratives.
At the group level, the numbers are exceptionally strong: profit after tax rose 222% to US$19.8 million and total assets increased substantially.
Underneath that headline, however, the insurance service result declined, net insurance and reinsurance performance fell to US$4.2 million after insurance finance effects, and the health claims ratio increased.
Meanwhile, investment returns and property revaluations generated approximately US$27.5 million in gains.
For investors, the key question is consequently not whether First Mutual can produce strong headline profits. It has demonstrated that it can.
The more important question is whether the group’s core insurance earnings can catch up with the performance of its investment portfolio.
If premium growth begins translating into stronger insurance service results and the health claims ratio stabilises, First Mutual would have a broader and more recurring earnings base.
If investment and property gains continue to dominate the income statement while insurance margins remain under pressure, reported profitability will remain more exposed to financial-market and valuation conditions.
The first-half results therefore point to a strong group performance, but also establish a clear operational priority for the remainder of 2026: turn insurance revenue growth into stronger recurring service earnings while keeping claims costs under control.
