By PETERSON THIONG’O The EastAfrican
Posted Saturday, March 30 2013 at 18:09
Posted Saturday, March 30 2013 at 18:09
In Summary
- An analysis of the insurance sector shows that companies recorded a steep increase in investment income and revaluation gains, helped by a 30 per cent rise in the value of the NSE as at the end of last year, as well as a drop in interest rates.
- The insurance industry is likely to benefit more, as analysts predict better market penetration buoyed by the use of technology and establishment of more distribution centres.
- Insurance companies have been trying their best to increase penetration, and investing in property to protect themselves against the vicissitudes of the stocks market.
The rebound of the Nairobi Securities Exchange
(NSE) coupled with falling interest rates has boosted insurance sector
earnings, helping reverse the losses players made in 2011.
An analysis of the insurance sector shows that
companies recorded a steep increase in investment income and revaluation
gains, helped by a 30 per cent rise in the value of the NSE as at the
end of last year, as well as a drop in interest rates.
Interest rates in Kenya went down from 28 per cent
in 2011 to an average of 18 per cent after tightening of the country’s
monetary policy.
Since bonds and interest rates have an inverse
relationship–meaning a drop in rates leads to a rise in the value of
bonds–the value of bonds for insurance companies has risen
significantly.
Boosted earnings
At CIC, while the increase in NSE’s value boosted
earnings, it also pushed up its unit trusts, leading investors to
withdraw their earnings to cash in on their performance.
Standard Investment Bank (SIB) said this partly contributed to the firm’s poor loss ratio, which is the difference between the premiums it generates and what it pays in claims.
“Increased unit trust value also contributed to the rise in claims due to the upswing of the equities market,” said Standard Investment Bank in a note to investors. “This led to loss ratio deteriorating to 64 per cent from 59 per cent in the year ended December. Due to focus on retail business, CIC’s loss ratio is historically higher than our sector.”
SIB says in the first three months of 2013, CIC’s loss ratio has improved, driven by reduced loss ratios in the medical insurance business class after the introduction of biometric recognition software in hospitals for its policy holders.
The insurance industry is likely to benefit more,
as analysts predict better market penetration buoyed by the use of
technology and establishment of more distribution centres.
This could replicate the success in the banking
industry, where branch expansion and the use of mobile phones has
enabled many Kenyans to open accounts and access banking services.
Kenya’s insurance penetration stood at 3.1 per cent at the end of 2012, the highest in East Africa. But this pales in comparison with the more developed markets like South Africa, where at least 11 out of every 100 people have insurance cover.
The recovery of both the money and equity markets helped boost insurance profits, with Britam’s comprehensive income jumping to Ksh4.18 billion ($49.17 million) compared with a loss of Ksh4.19 billion (49.29 million) in 2011.
Liberty’s comprehensive income rose with Ksh1.2
billion ($14.11 million) compared to a comprehensive loss of Ksh484
million ($5.6 million) in 2011.
CIC’s comprehensive income stood at Ksh1.4 billion ($16.79
million) compared with Ksh597 million ($7.02 million) in the previous
year.
Pan Africa Insurance’s comprehensive income rose to Ksh698 million ($8.21 million) compared with Ksh443 million ($5.21 million) in 2011.
Insurance companies have been trying their best to increase penetration, and investing in property to protect themselves against the vicissitudes of the stocks market.
But one of the biggest challenges of non-life insurance, of which a large component is compulsory auto insurance, is the fact that the margins remain low.
Efficiency remains a problem too, with many firms searching for ways to reduce costs and install information technology systems.
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