Insurers slash NSE investments to record lows

Nairobi Securities Exchange (NSE) trading floor. FILE PHOTO | NMG   

By PATRICK ALUSHULA More by this Author

Insurance and re-insurance firms have slashed their investment in stocks listed on the

Nairobi Securities Exchange (NSE) to below two percent of their portfolio, amid continued investor flight from the bourse.

Data by the Insurance Regulatory Authority (IRA) shows the sector’s investment in quoted equities dropped to Sh19.38 billion at the end of September 2023, marking a 27 percent decline from Sh26.53 billion in the preceding similar period.

The decline took the industry’s exposure to capital market investment to a record low of 1.9 percent of the Sh1.03 trillion assets compared with 2.9 percent in 2022 and 4.3 percent in 2021.

The continued sell-down from equities has come on the back of the underperformance of shares of many companies that are listed on the NSE at a time when returns from government securities have been trending upwards.

The underwriters have in the process increased their investment in government securities– Treasury bonds and treasury bills.

Long-term insurers’ stake in government securities grew 10.3 percent to Sh503.6 billion or 76.8 percent of business investments as that of general insurers increased by 8.2 percent to Sh96.15 billion or 59.2 percent of their total investments.

Read: Why NSE has been ranked the worst performing in Africa

Government securities were in 2014 accounting for 45 percent of the insurance industry’s investments while quoted equities took up 20 percent but this has been falling over the years.

The value of the equities investments over three years to the end of September has fallen by over 45.5 percent, with the underwriters redirecting their investment portfolio towards government securities, investment property and term deposits, which have offered more stable returns.

Central Bank of Kenya data showed insurance companies accounted for 7.36 percent or Sh371.4 billion of Kenya’s Sh5.045 trillion domestic debts by the end of January 26.

The NSE has since mid-2019 been hit by successive shocks including the Covid-19 pandemic, ongoing Russia-Ukraine conflict, dollar shortages, and rising interest rates in developed markets leading to the erosion of billions of shillings of investor wealth.

The Nairobi bourse last year recorded a 27.5 percent fall in paper wealth amounting to Sh547 billion as the multi-year bear run continued to ravage investors' equities portfolio.

A drop in the fair value of shares at the NSE hurts investment income, which has increasingly become critical for the sector that has been relying on such returns, given the losses in major insurance classes such as medical and motor.

Many insurers have therefore responded to the bear run at the market by cutting their exposure to equities to protect their profitability.

Britam Holdings, which has traditionally held one of the larger exposures to the stock market through investments in the banking sector, has for instance been taking steps to unwind its position.

Read: Geoffrey Odundo exits NSE as it battles its worst market rout

The insurer said last year it had stopped increasing investments in equities to minimise exposure in the wake of falling share prices of many companies at the NSE.

→ palushula@ke.nationmedia.com