Liberty alert leaves 2 NSE insurers in profit growth zone

The NSE-listed firms that have issued profit alert have increased to 18 from 11 last year. PHOTO | FILE 

In Summary

• CIC and Jubilee Holdings are the only insurers yet to issue a profit warning arising from a sustained bear run at the NSE where most insurance firms are heavily invested.
• Liberty Holdings declaration pushed the number of traded firms that have announced an expected sharp drop in earnings to 18 compared to the 11 that did so last year.

Only two listed insurers are now yet to issue profit alerts after Liberty Holdings warned its profit would fall by at least 25 per cent at the weekend, making 2015 one of the worst years in the industry’s history.

Composite underwriters CIC and Jubilee Holdings are the only insurers yet to issue a profit warning arising from a sustained bear run at the Nairobi Securities Exchange (NSE) where most insurance companies are heavily invested.

Kenya Re, the only listed reinsurer, has also not issued a profit warning even though it also invests in the securities market.

Liberty Holdings joined Pan Africa Holdings, Britam and UAP Holdings that have already issued profit warnings — all of them citing erosion of their portfolios at the NSE. Firms holding stocks and bonds are supposed to revalue them to reflect the market.

“Companies are in different situations; the last quarter of the year was tough for most in terms of investment income,” said CIC chief executive Tom Gitogo, who, however, did not wish to discuss the matter further as the company is in a closed period.

Liberty Holdings declaration pushed the number of traded firms that have announced an expected sharp drop in earnings to 18 compared to the 11 that did so last year.

“There was a decline in asset values which negatively impacted the investment income when compared to the previous year,” Liberty Holdings said in a statement to the NSE.

Liberty posted a 40.6 per cent growth in after-tax profits last year to Sh585 million from Sh416 million having made Sh2.3 billion in investment income up from Sh2 billion in 2013.

The company had invested Sh3.3 billion in equities market and Sh3.5 billion in government securities.

The indicative 20 share index dropped 22 per cent last year underlining the steep drop in stock prices that saw investor wealth at the bourse as measured by market capitalisation shrink by Sh275 billion.

READ: Liberty Holdings pushes number of NSE profit warnings to 18

Insurance companies had invested 12.2 per cent of their portfolio estimated at Sh376 billion in the equities market as at end of September. The insurers had invested 42.4 per cent of the portfolio in government securities which are also expected to book unrealised losses.

Interest rates of Treasury bills closed the year at above 10 per cent up from 8.5 per cent at the beginning of the year.

A rise in interest rates has an inverse relationship with the price of bills and bonds in the market such that losses are incurred once the yield rises because the price falls.

International accounting standards require companies to book their investments at current market prices.