NSE boosts insurers’ investment portfolios

 

UAP Holdings managing director James Muguiyi (left) and Finance PS Joseph Kinyua during the launch of the firm’s IPO that raised Sh750 million to be used in property investment in the region. FILE 

By George Ngigi

In Summary

• Most companies put their money into government securities and real estate.
• The total investments by the industry amounted to Sh235.6 billion at the end of last year compared to Sh190.2 in 2011.
• The growth was leveraged by increased uptake of life insurance policies whose contributions are usually invested in long-term assets.

Investment by insurance companies grew by 23.8 per cent last year following a rebound at the Nairobi Securities Exchange (NSE), with much of the profit-taking going into government securities and the lucrative real estate sector.

The total investments by the industry amounted to Sh235.6 billion at the end of last year compared to Sh190.2 in 2011.

“It constituted 77.9 per cent of the total industry assets. The investments under life insurance business amounted to Sh150.6 billion being 63.9 per cent of total industry investments while general business investments were Sh85 billion,” said Insurance Regulatory Authority (IRA) in its 2012 report released last week.

The growth was leveraged by increased uptake of life insurance policies whose contributions are usually invested in long-term assets unlike those collected under the general or short-term business.

Gross written premiums by insurance companies grew by 11.4 per cent last year to Sh108.6 billion last year.

“If you have more money without claims the best decision then is to invest it,” said James Oyugi general manager at Metropol Life.

Claims and policyholders benefits under life business last year amounted to Sh16.9 billion. These had decreased by 4.7 per cent from Sh17.8 billion recorded the previous year.

Insurance companies’ investment in real estate grew more than four folds to Sh45 billion from Sh10.8 billion as the underwriters banked on the sustainability of growth in the property sector.

“Companies in long term business are likely to invest more in long term investments like property. Those in short term business would most likely invest in short term investment instruments such as stocks and government Securities.

“The choice of investment avenues is also dictated to by the size of the available funds vis-à-vis the day-to-day liabilities that need to be met,” said Tom Gichuhi the managing director of Association of Kenya Insurers.

Some of the insurance companies that have reviewed their investment portfolio to play bigger roles in real estate include CIC Insurance — which acquired 400 acres of land last year at Sh1 billion for property development and UAP Holdings — which raised Sh750 million last year through an initial public offer, to be used to complete property projects in Kenya, Uganda and South Sudan.

Investment in government securities grew to Sh94.8 billion from Sh75.3 billion.

“There is affinity toward these two areas as you hardly loose. From property you can get income from two sources — rental or capital gains — and the sector has been doing well,” said Mr Oyugi.

Rapid urbanisation, population growth and expansion of the middle class remain the main drivers of Kenya’s property market that is riding on nearly three decades of under investment in mid-tier segment of housing.

At present, 32.2 per cent of Kenyans or 12.4 million live in urban areas, up from 23.6 per cent or 5.6 million in 1990. This has assured property developers of demand as witnessed in Nairobi’s middle-income areas where prices of apartments have more than doubled in five years.