Insurance Regulatory Authority (IRA) CEO, Godfrey Kiptum.
Insurers’ net profit for the half-year ended June 2024 rose 2.3 times to Sh15.85 billion, helped by increased investment income that more than compensated for underwriting losses.
The latest Insurance Regulatory Authority (IRA) data shows the rise in net profit was from Sh6.93 billion posted in the preceding similar period. This means the insurers’ six-month net earnings surpassed the Sh13.33 billion they posted in the full year ended December 2023.
The improved profitability in the first half of 2024 was on the back of improved investment income— receipts from investments such as government securities, fixed deposits and property—rising 3.5 times to Sh119.67 billion from Sh33.99 billion.
The growth in investment income helped insurers to rise past the underwriting losses—the difference between premiums collected and claims paid out— which nearly quadrupled to Sh6.07 billion from Sh1.58 billion in the preceding half-year.
Underwriting results worsened mainly on the back of general insurers witnessing a rise in losses, from insuring commercial and private vehicles.
The underwriting losses from insuring private motor vehicles nearly doubled to Sh2.36 billion from Sh1.4 billion, while that from commercial vehicles hit Sh2.05 billion from Sh1 billion. Losses from insurance against theft hit Sh463.3 million from Sh70.1 million.
Underwriting losses
Investment income has emerged as a big contributor to insurers’ profits on the back of major classes of insurance, including motor and medical, posting underwriting losses.
Insurers have been going for investment classes with higher and relatively stable returns, cutting their exposure on the Nairobi Securities Exchange to below three percent of their investment portfolio.
Out of Sh168.69 billion in investments under general insurance business as of the end of June last year, government paper accounted for 56.1 percent of the amount, followed by term deposits and investment property at 18.1 percent and 15.1 percent, respectively.
Investments in the long-term insurance business amounted to Sh761.58 billion at the end of the review period, with government securities taking up 76.4 percent or Sh551.6 billion of the total amount.
Nine percent and 7.1 percent were in term deposits and investment properties, respectively.
The preference for government paper is a big shift for insurers considering that in 2014, under 50 percent of their money was in this investment class.
Insurers face a headache this year as returns on government paper continue to fall, with indications of a recovery in the equities.
For instance, returns from 91-day, 182-day, and 364-day Treasury bills averaged 9.11 percent, 9.51 percent, and 10.75 percent respectively in the latest auction. The same papers fetched 15.98 percent, 15.97 percent, and 16.1 percent respectively in the first auction of January 2023.
Central Bank of Kenya data showed insurance companies accounted for 7.32 percent or Sh409.99 billion of Kenya’s Sh5.41 trillion domestic debt by the end of August this year.
