The Jubilee Insurance headquarters in Nairobi. The underwriter had a return on investment of 6.9 per cent in 2015. PHOTO | FILE
By GEOFFREY IRUNGU, girungu@ke.nationmedia.com
In Summary
Jubilee Insurance
had the highest return on equity (ROE) or profitability in 2015 among
underwriters listed on the Nairobi Securities Exchange (NSE) as Britam performed the worst, a new report shows.
According to Cytonn Investments, Jubilee Insurance had a ROE of 16.9 per cent while Kenya Re came second at 16.6 per cent.
ROE is a profitability measure that shows how much a
company generates with the money shareholders have invested. Firms
with higher ROEs are better at utilising capital to generate profits.
The lowest ROE was that of Britam at negative five
per cent, the Cytonn report showed. Britam made a Sh1 billion loss for
the year ended December 2015, a development that was linked to the lower
valuations of the quoted firms in which it has invested.
But for the positive ROEs, PanAfrica Insurance
had the lowest at 0.7 per cent. However the analysts noted that the
insurance companies were diversifying their investments as returns from
the securities exchange dwindled and premiums remained constrained.
“Insurance companies in Kenya have actively
ventured into the real estate segment particularly in the office space
segment with the Britam and UAP towers coming up during the year. The
adoption of asset management by CIC and Pan Africa insurance has also
seen the sector further diversify revenue streams aiming to grow their
investment incomes,” said Cytonn.
In the report released last week, Cytonn said the
six listed insurance companies had an ROE of 12.4 per cent on average —
which would have been higher were it not for the Britam’s negative
returns.
To beat low returns, the insurance sector is also
coming up with new products such as Orange (Telkom) Bima from a
partnership with CIC, and Airtel also partnering with Pan Africa Life
and MicroEnsure to create an insurance product covering Airtel customers
in Kenya to access free life, accident and hospitalisation insurance
based on how they spend on the network.
However, there are those who feel that the
insurance sector does not have enough new products getting into the
market, saying that it continues to rely on traditional products. They
see this as the major reason for the low premiums collection by the
underwriters.
“You have a situation whereby innovation and
development in the industry are not moving. We still have the old
products. When you have bigger companies, they can devote resources to
innovation,” said Nelson Kuria, formerly CIC Insurance chief executive
in an earlier interview.
Mr Kuria cited the issue of low capital as among
the key hindrances of innovation and clinching of deals given that the
existing underwriters are small. He proposed mergers and acquisitions to
foster growth of the industry.
“We have no choice but to have mergers in order to
make the industry stronger. It is no use having small companies that
cannot do big deals, giving the way to foreigners to monopolise big
contracts,” said Mr Kuria.
Cytonn noted that insurers cannot expect to make much money from merely collecting premiums.
“Insurance companies are largely not profitable
from their core business and diversification of their revenues is key in
profitability,” says Cytonn Investments
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