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Insurers’ loss ratio rises despite anti-fraud rules

Cytonn’s assistant investment analysts Dennis Kariuki. FILE PHOTO | NMG
Cytonn’s assistant investment analysts Dennis Kariuki. FILE PHOTO | NMG 

A 2017 insurance industry half-year report by Cytonn Investments shows the loss ratio across the sector rose to 72.7 per cent from 66.5 per cent recorded in the first half of 2016.

The ratio, portion of premiums paid out, went up despite introduction of tough measures by market players to reduce fraudulent claims.

The industry was, however, slightly cushioned as the expense ratio dropped marginally to 54.3 per cent from 55.5 per cent in the first half of 2016, owing to a decrease in operating expenses amidst a robust growth in net premiums earned.

The report indicated that on average, the insurance sector has delivered a return on Average Equity (ROAE) of 10.9 per cent, a marginal improvement from nine per cent recorded during the same period last year. The lukewarm performance comes even as the sector is expected to dig deeper into its pocket to keep up with impending rules.

“Following the adoption of a risk-based framework for capital adequacy assessment, the sector is set to experience an increase in mergers and acquisitions, and the move is also likely to lead to capital raising initiatives by some players in the sector to shore up capital,” said Cytonn’s assistant investment analysts Dennis Kariuki.

Last month, Britam Holdings, announced a deal to raise Sh5.7 billion from Africinvest III, a special purpose vehicle (SPV) managed by Africinvest Capital Partners Management II.

The solvency margins for the listed insurance have declined from a high of 30.1 per cent in 2014 to 28.7 per cent during the first six months of 2016.

It stood at 27.8 per cent in the first half of 2017, indicating that assets have been growing faster than shareholder’s funds.

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