Insurers gain from share price rally at NSE

 

Shares rally at the Nairobi Securities Exchange boosted earnings. FILE 

By GEORGE NGIGI

In Summary

• Investment earnings for 2013 rose to Sh12 billion compared to Sh8.76 billion in a similar period last year, according to data from the Insurance Regulatory Authority.

Insurance companies’ investment income grew by 37 per cent in the first six months of the year driven by share price increases and high-yielding treasury bonds.

Data from the Insurance Regulatory Authority (IRA) shows the investment earnings for 2013 rose to Sh12 billion compared to Sh8.76 billion in a similar period last year.

Their total investment rose to Sh258.7 billion from Sh211.8 billion last year, a growth of 22 per cent, which is lower than the increase in investment income.

“Performance of the market, both the NSE and money markets has been good. The high interest rates that have been there have enabled people to lock in high returns for a longer period,” said Gladys Karuri, the director of finance and strategy at Britam.

Britam recorded a 44 per cent growth in its investment income for the period to Sh3.7 billion.

High interest rates on government securities and commercial bank deposits benefited the insurers.

Insurance companies increased their investment in Treasury bills and bonds to Sh80.1 billion from Sh62.6 billion and their cash deposits to Sh26 billion from Sh22.8 billion.

In the six months to June the Nairobi stock market was up 5.1 per cent as indicated by the 20 share index. Improved investment income boosted the profitability of listed insurance companies, all of them recording higher profits.

Jubilee Insurance reported Sh1.14 billion profit after tax compared to Sh927 million in June last year while CIC had a net profit of Sh436 million up from Sh415 million.

Their profitability was also supported by a drop in the proportion of claims paid out from the premiums as indicated by incurred claims ratio.

“When the claims ratio reduces it means that you are becoming profitable as you retain more of the premiums,” said Brenda Kithinji, a research analyst at Standard Investment Bank.

The improved performance has seen share prices of listed insurers rise as investors position themselves to reap from expected higher profits.

The gross premium income under the general business rose by 16.7 per cent to Sh42.7 billion while claims incurred under the same category increased by 12.9 per cent to Sh16.2 billion.

The class of commercial motor vehicle is the greatest contributor of general premium at 22.4 per cent followed by medical premiums at Sh9.3 billion ahead of private cars
.

However medical claims and those from private motor vehicles surpass demands by the passenger service vehicles, what analysts attribute to fraud and undercutting.