Insurance owners’ returns fall for third year in a row

Insurance companies last year posted declining returns to shareholders for the third year in a row as new rules on valuation and a tough operating environment hit the industry.

Data released by the watchdog shows return on equity (ROE) stood at 7.91 per cent for general businesses compared to 12.02 per cent in 2015 and 18.23 per cent in 2014.

Similarly for life businesses, Insurance Regulatory Authority showed ROE stood at 14.36 per cent last year compared to 5.07 per cent in 2015.

There was, however, a 21.68 per cent return in 2014 thanks to better stock market performance.

“Insurance firms adjusted to the actuarial calculation,” said Isaac Ngaru, an insurance consultant with Ngaru & Associates.

Mr Ngaru noted that general insurers also faced a tough time last year with firms undercutting each other.

“There was considerable undercutting in the industry which wreaked havoc on the rates,” added Mr Ngaru.

Insurers had also to contend with a bear market at the Nairobi Securities Exchange (NSE).

Mr Ngaru projected a tough year for the business as more Kenyans hold on to their money in an election year.

According to to the Insurance Regulatory Authority, in 2016 insurance premiums registered a growth of 12.3 per cent largely driven by growth in the life sector.

This was an accelerated growth compared to 9.9 per cent witnessed in the previous year. The life sector grew by 19.3 per cent compared to 8.5 per cent growth in the non-life segment.

The insurance industry asset base was Sh525.25 billion as at the end of December 2016. This was a growth of 10.1 per cent from Sh477.22 billion held as at the end of the previous year.

Income generating assets formed 80.6 per cent (Sh423.31 billion) of the total assets.

The total insurance industry’s liabilities grew by 10.3 per cent to Sh384.96 billion from Sh349.05 billion registered in 2015.

The general insurance business underwriters incurred claims amounting to Sh53.70 billion in 2016, an increase of 9.3 per cent compared to Sh49.13 billion incurred during the previous year.

Reinsurance premiums have been shrinking against the backdrop of declining reinsurance activity in the market. The premiums reported by reinsurers by the end of 2016 amounted to Sh17.66 billion compared to Sh18.44 billion reported by the end of 2015.

This represents a decline of 4.3 per cent during this period. The gross premium income reported under life reinsurance business amounted to Sh2.39 billion while that under general reinsurance business was Sh15.27 billion.