Markets & Finance

Jubilee tops profit list of insurers as Britam comes last

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The Jubilee Insurance headquarters in Nairobi. The underwriter had a return on investment of 6.9 per cent in 2015. PHOTO | FILE

Jubilee Insurance had the highest return on equity (ROE) or profitability in 2015 among underwriters listed on the Nairobi Securities Exchange (NSE) as Britam performed the worst, a new report shows.

According to Cytonn Investments, Jubilee Insurance had a ROE of 16.9 per cent while Kenya Re came second at 16.6 per cent.

ROE is a profitability measure that shows how much a company generates with the money shareholders have invested. Firms with higher ROEs are better at utilising capital to generate profits.

The lowest ROE was that of Britam at negative five per cent, the Cytonn report showed. Britam made a Sh1 billion loss for the year ended December 2015, a development that was linked to the lower valuations of the quoted firms in which it has invested.

But for the positive ROEs, PanAfrica Insurance had the lowest at 0.7 per cent. However the analysts noted that the insurance companies were diversifying their investments as returns from the securities exchange dwindled and premiums remained constrained.

“Insurance companies in Kenya have actively ventured into the real estate segment particularly in the office space segment with the Britam and UAP towers coming up during the year. The adoption of asset management by CIC and Pan Africa insurance has also seen the sector further diversify revenue streams aiming to grow their investment incomes,” said Cytonn.

In the report released last week, Cytonn said the six listed insurance companies had an ROE of 12.4 per cent on average — which would have been higher were it not for the Britam’s negative returns.

READ: Britam to pay dividends in the face of Sh1 billion loss

To beat low returns, the insurance sector is also coming up with new products such as Orange (Telkom) Bima from a partnership with CIC, and Airtel also partnering with Pan Africa Life and MicroEnsure to create an insurance product covering Airtel customers in Kenya to access free life, accident and hospitalisation insurance based on how they spend on the network.

However, there are those who feel that the insurance sector does not have enough new products getting into the market, saying that it continues to rely on traditional products. They see this as the major reason for the low premiums collection by the underwriters.

“You have a situation whereby innovation and development in the industry are not moving. We still have the old products. When you have bigger companies, they can devote resources to innovation,” said Nelson Kuria, formerly CIC Insurance chief executive in an earlier interview.

Mr Kuria cited the issue of low capital as among the key hindrances of innovation and clinching of deals given that the existing underwriters are small. He proposed mergers and acquisitions to foster growth of the industry.

“We have no choice but to have mergers in order to make the industry stronger. It is no use having small companies that cannot do big deals, giving the way to foreigners to monopolise big contracts,” said Mr Kuria.

Cytonn noted that insurers cannot expect to make much money from merely collecting premiums.

“Insurance companies are largely not profitable from their core business and diversification of their revenues is key in profitability,” says Cytonn Investments.