Insurers investments at the NSE hit a record low

Insurance and re-insurance firms have slashed their investment in stocks listed on the Nairobi Securities Exchange (NSE) to below 2 per cent of their portfolio amid continued investor flight from the bourse.

Data by the Insurance Regulatory Authority shows the sector’s investment in quoted equities dropped to Sh19.38 billion at the end of September 2023, marking a 27 per cent 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 per cent of the Sh1.03 trillion assets, compared to 2.9 per cent in 2022 and 4.3 per cent 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.

Stable returns

The underwriters have in the process increased their investment in government securities — bonds and bills.

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

Government securities were in 2014 accounting for 45 per cent of the insurance industry’s investments while quoted equities took up 20 per cent.

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

Domestic debt

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

The Nairobi bourse last year recorded a 27.5 per cent fall in paper wealth amounting to Sh547 billion as the multi-year bear run continued.

This drop hurts investment income, which has increasingly become critical for insurers given the losses in major insurance classes such as medical and motor.

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