Insurance companies raise holdings in government bonds

  Sanlam House on Kenyatta Avenue in Nairobi. FILE PHOTO | NMG

By CHARLES MWANIKI

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Summary

• In 2016, their government securities holdings of Sh211.2 billion represented 49.9 per cent of total investments.
• The insurers also increased their equities holdings, raising the amount allotted to quoted securities by Sh9 billion to Sh45 billion, equivalent to a year-on-year increase from 8.5 per cent of total investments to 9.4 per cent.

Insurance firms boosted their holdings of government securities to more than half of all their investment last year as they chased guaranteed returns in an uncertain economy.

The latest data from the Insurance Regulatory Authority (IRA) shows that industry investments in government securities amounted to Sh256.8 billion, representing 53.7 per cent of the total investments of Sh478.2 billion.

In 2016, their government securities holdings of Sh211.2 billion represented 49.9 per cent of total investments.

The insurers also increased their equities holdings, raising the amount allotted to quoted securities by Sh9 billion to Sh45 billion, equivalent to a year-on-year increase from 8.5 per cent of total investments to 9.4 per cent.

“Investments by the industry insurers and reinsurers grew by 13 per cent from Sh423.31 billion reported in the fourth quarter of 2016 to Sh478.2 billion in 2017. Asset classes with the highest investment proportions were; government securities (53.7 per cent), investment property (15.9 per cent), equities (9.4 per cent) and term deposits (8.3 per cent),” said the IRA in its fourth quarter 2017 industry report.

The value of property investments rose by Sh4.9 billion to hit Sh76 billion, even though as a percentage of total investments there was a drop from 16.8 to 15.9 per cent year-on-year. Government securities are often considered a safe haven investment whenever there is uncertainty in the economy, especially where one makes a long-term bet by investing in longer tenor paper.

In 2017, yields on government securities outperformed inflation, which averaged eight per cent.

The yield curve ranges from eight per cent for three-month Treasury bills to 13.5 per cent for bonds maturing in more than 20 years.

In the equities market, share prices rebounded starting the second quarter of 2017 after a prolonged slump, with the NSE 20 Share Index eventually closing the year 16.5 per cent up and the NSE All-Share Index (NASI) gaining 28.4 per cent.

Two insurance firms that have released their full-year financial results have reported increases in their investment income.

CIC Insurance’s investment income rose by 18.6 per cent to Sh1.54 billion for the year ended December 2017, while that of UAP jumped 27.87 per cent to Sh3.98 billion in the period.

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