Insurance firms Q3 earnings fall 53pc as stock market slumps

Insurance companies posted a 56.3 per cent drop in profit after tax in the nine months to September following a poor run of fortunes at the Nairobi Securities Exchange (NSE) and money market.

Data from the Insurance Regulatory Authority (IRA) shows insurance companies posted a total of Sh4.5 billion in after-tax profit at the end of September compared to Sh10.3 billion in a similar period last year.

The profit drop signals a likely dividend drought for shareholders and possible capital injections to recover capital positions for those that post losses.

Life insurers were the most affected by the slump, with their profits declining 79 per cent to Sh872 million from Sh4.1 billion last year while general business recorded a 41 per cent drop to Sh3.6 billion.

“Prices at the stock market have declined so the valuation losses are large. For example Britam acquired Equity Bank’s stake at Housing Finance at Sh47.70 per unit but it is trading at Sh21.75,” said head of research at Sterling Capital Eric Munywoki.

The indicative NSE 20 share index has dropped by 22.5 per cent since the beginning of the year underlining the poor performance of the stock market which is attributed to investors moving to the more rewarding money market and foreigners exiting in fear of the impact of the US interest rate increase.

Life insurers invested 48.5 per cent of their portfolio in government securities and 13 per cent in listed shares.

The value of Treasury bills and bonds was affected by a raise in interest rates at the end of September.

Treasury bills and bonds prices have an inverse relationship with interest rates—prices or value fall in the secondary market when interest rates rise because investors can get better returns at the primary market.

IRA said the investment income for life insurers declined to Sh187 million in September compared to Sh1.5 billion in a similar period last year.
Metropolitan Insurance company recorded the largest loss among life insurers of Sh115 million in the nine months.

UAP Life made a Sh453 million loss in the 10 months to October, which management attributed to unrealised losses that saw its parent company inject additional capital.

South African rating agency, GCR, has accorded a negative outlook, from previous stable, to three Kenyan insurers it rated in the recent past.
The unrealised losses are only actualised if the insurer decides to sell the asset at the current low prices.

Losses by general insurers were attributed to higher claims that grew at a faster pace than premium collections.

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Claims for general accidents grew by 20.3 per cent compared to 11.5 per cent growth in premiums. This resulted in underwriting profits slumping by 56 per cent to Sh513 million from Sh1.1 billion.

General insurance has also been adversely affected by fraud especially in the motor and medical business.

“Worth noting are the large amounts of theft by insurance company employees and fraudulent motor insurance claims at Sh10.5 million and Sh13 million respectively (during the third quarter). This depicts keys areas of insurers’ exposure to insurance fraud risk,” reads part of the IRA report.

Life insurance premiums grew by 15.1 per cent which is slower than the 27.4 per cent recorded last year.

IRA has recommended introducing new investment guidelines for insurance companies which will give them freedom in how they invest excess premiums.

The current regime is considered rigid as it dictates the proportion of the portfolio they are to put in each asset class.

Insurance companies only publish their financials every six months but are required to submit the statements to IRA.