Insurers profit from aggressive regional growth

Money Markets

Jubilee Insurance Company offices on Wabera Street in Nairobi. Expansion drive by Kenyan insurers bears fruit. File 

By GEORGE NGIGI

In Summary

• Insurance penetration in Kenya is estimated at three per cent, which is higher than Rwanda at 2.4 per cent, Uganda at 0.66 per cent and Tanzania at 0.8 per cent.
• Some insurers have opted to buy mid-sized companies rather than start from scratch in the targeted markets.

Kenyan insurers with operations in East Africa are reaping big from subsidiaries, which are raking in pioneer benefits in fairly virgin markets.

 

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Jubilee Insurance subsidiaries contributed 45 per cent of the group’s after-tax profits last year while UAP’s regional operations contributed 24.7 per cent. Jubilee operations in Uganda, Tanzania, Mauritius and Burundi made a total of Sh1.1 billion up from Sh894 million in 2012.

UAP’s businesses in South Sudan, Uganda, Tanzania and Rwanda posted after-tax profits of Sh448 million up from Sh55 million an year earlier.

The insurers have now set their eyes on increased presence in the region to take advantage of the nascent markets. CIC Insurance intends to be operational in South Sudan next month, and in Uganda and Malawi by end of September.

“It is an issue of economies of scales and low hanging fruits. The other markets are not as competitive as Kenya’s and they have investment opportunities so they make more margins,” said CIC’s chief executive Nelson Kuria from Uganda in a phone interview.

He also warned that barriers to entry in regional markets were likely to be raised, favouring immediate action.

Insurance penetration in Kenya is estimated at three per cent, which is higher than Rwanda at 2.4 per cent, Uganda at 0.66 per cent and Tanzania at 0.8 per cent. Penetration compares the premiums collected by insurers against the country’s gross domestic product.

“Low penetration levels amongst EAC members present opportunities for aggressive regional expansion” noted Genghis Capital in an analysis report of the sector.

Britam’s operations in Uganda, South Sudan and Rwanda contributed three per cent of its premium collections up from 1.2 per cent a year earlier. APA Insurance also has operations in Uganda and Tanzania while ICEA has a subsidiary in Uganda.

CIC intends to ride on co-operative movements in the new markets and has commitments from the Malawi Union of Savings and Credit Co-operatives and its Ugandan counterpart.

Other insurers have opted to buy mid-sized companies rather than start from scratch in the targeted markets. Jubilee has declared its intentions to acquire rivals so as to consolidate its market leadership.

Last year, UAP acquired 60 per cent of Tanzanian Century Insurance while Britam acquired its smaller rival in Kenya, Real Insurance, giving it a presence in Tanzania, Malawi and Mozambique.

“Smaller players in defensive mode are likely to seek strategic alliances or joint ventures to protect their operations,” said Genghis Capital.