Investing in bonds boosts Pan Africa Insurance’s profits

Investment in long term bonds helped Pan Africa Life Insurance Holdings more than double its investment income in the financial year ending December 2009.

The gains from long term bonds were made despite a drop in the Nairobi Stock Exchange’s 20 Share Index and reduced interest in short term Treasury bills.

Investment income for the insurance industry suffered a major beating in the financial year ending December 2008 after a poor performance of shares and bonds at the NSE.

At the time, insurers had bet on high yielding securities.

It is likely that insurance companies shifted significant investments in long term and stable bonds, indicating that 2009 was probably a better year for insurers to correct their books from previous loss.

“Our investment in the equity market did better than the average market. While the stock market did decline, our investment in the stock market appreciated in market value following proactive realignment on certain stocks where we could get value,” he said.

The insurer increased its total revenue by about Sh0.8 billion and its gross premium by 21 per cent to Sh3 billion, helping it record a profit after tax to Sh139 million for the year ending December 31 2009 compared to a loss of Sh96 million for the year ending December 31 2008.

“As a long term insurance company, our focus has been on long term bonds like the infrastructure bonds,” he added.

Performance declined

Last year, NSE performance declined by eight per cent.

Interest on 91-day Treasury bills dropped 8.54 per cent in December 2008 to 6.82 per cent in December 2009, while the shilling remained volatile, presenting a challenging investment environment for insurance companies.

The company said its business growth will be based on last year’s model of investment and that it will diversify it investment into the property market.

The company’s Mae Ridge Housing development in Runda, where it is developing high end residential houses, will be completed next month.

The investment is likely to provide a stable source of income.