High risk profile raises cost of insurance for Kenyan firms

Kenya’s risk profile rose sharply in the past 12 months, pushing up terrorism and political risk premiums by up to 100 per cent and making it difficult for businesses to find cover in the run-up to next year’s General Election.

Lloyds of London – the dominant re-insurer of big-ticket risks in Kenya — said rating agencies had raised the country’s risk to 4.5 just 0.5 points shy of the maximum rating of five.

This marks a deterioration in Kenya’s risk profile which stood at four early last year.

A rating of 4.5 puts Kenya on the same list as the world’s war-torn countries that are regarded as bearing the highest risk to businesses, insurers and re-insurers.

A rating of five signifies maximum risk, four (high risk), three (medium risk), two (low risk) and one minimum risk.

“One of the companies used (by Lloyds) reflects that Kenya’s risk rating has been trending upwards since 2010.

In early 2011, it was just under 4.0 and now it is between 4.2 and 4.5,” said a London-based analyst specialising in terrorism and sabotage insurance.

“In coming weeks, as Kenyan forces prepare to enter Al-Shabaab’s stronghold of Kismayu, concern has been rising in the local business community that any retaliatory attacks from the militant group may cause a further decline in the country’s rating, adding to the cost of insurance premiums,” he said.

Besides raising the cost of premiums payable by businesses and government agencies for terrorism and political risk covers, the higher rating has forced insurers to cede larger proportions of premiums to re-insurers who are cutting back their exposure in Kenya.

The basket of risks covered under terrorism and political insurance plans includes malicious damage, political violence, interference, sovereign defaults and supply chain disruption.

The cover guarantees businesses compensation for property lost and a pre-determined gross profit margin in the event of loss.

Kenya’s top re-insurer — Kenya Re — has, for instance, covered only nine local insurance firms underwriting terrorism and political risks, turning away more than 20 others.

Newton Gatamah, a manager at Jubilee Insurance, said the main casualties of the higher risk perception includes banks, media houses, critical government installations and establishments close to US and Israeli embassies that have been singled out as high risk targets.

“Companies and insurers seeking new terrorism and political risk covers in recent months have seen a steep rise in premiums of up a 100 per cent and some have been rejected altogether by the underwriters,” Mr Gatamah said.

A steep rise in the cost of premiums and denial of cover to ‘high-risk’ clients exposes the economy to major losses in the event of an attack because there will be no compensation for the losses.