How investment income handed insurers record Sh8.5bn profit

The net profit was further boosted by improved underwriting results.

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Insurance companies posted a record Sh8.52 billion net profit in the first quarter ended March 2024, boosted by increased investment income and narrowed losses from the underwriting business.

Latest industry disclosures by the Insurance Regulatory Authority (IRA) show the net profit was a 5.3 times jump from Sh1.6 billion posted in the preceding similar quarter, marking the best first quarter performance on record for underwriters.

The IRA’s industry performance data excludes six insurers. Jubilee Allianz General Insurance, MUA Insurance (Kenya), Corporate Insurance Life did not submit their unaudited returns while returns of Invesco Monarch Insurance General and Trident Insurance were rejected due to non-compliance with submission requirements.

Life insurers, also called long-term underwriters, accounted for Sh6.61 billion or 77.6 percent of the net profit, leaving Sh1.91 billion in the hands of general or short-term insurers.

Under life insurance, ICEA Lion Life posted the highest net profit (Sh2.99 billion), followed by GA Life (Sh1.36 billion) and Britam Life (Sh680.9 million). Among the general insurers, the most profitable insurer during the quarter was GA Insurance (Sh461.51 million), followed by Heritage Insurance (Sh342.72 million) and Britam General (Sh325.96 million).

The industry performance suggests that 2024 may have been one of the best years for insurers given that the net profit for the full year ended December 2023 was Sh13.33 billion. This means that insurers used three months of 2024 to generate 64 percent of the profit they generated in the whole of 2023.

The improved profitability in the first quarter of 2024 was on the back of investment income tripling to Sh52.79 billion from Sh17.37 billion.

The increased investment income came as returns from government paper, investment property and term deposits rose and investments in income generating assets hit Sh968.22 billion, marking a 12.3 percent rise from Sh862.04 billion.

The net profit was further boosted by improved underwriting results.

The insurers cut their underwriting losses —the difference between premiums collected and claims paid out— to Sh819.4 million, being a 59.3 percent reduction from Sh2.01 billion loss in a similar quarter in 2023.

General insurers cut their losses in motor commercial covers by 44 percent to Sh1.16 billion while that of insuring private vehicles reduced by 18 percent to a loss of Sh331.4 million.

In medical insurance, which is another loss-making business for insurers, insurers cut the underwriting loss by 77 percent to Sh265.7 million from Sh1.15 billion.

Investment income has emerged a big contributor to insurers’ profits on the back of major classes of insurance, including motor and medical, posting losses.

Insurers have been going for investment classes with higher and relatively stable returns, cutting their exposure at Nairobi bourse to below three percent of their investment portfolio.

Out of Sh161.64 billion investments under general insurance business as at end of March last year, government paper accounted for 57 percent of the amount, followed by term deposits and investment property at 18.3 percent and 13.7 percent respectively.

Investments under long-term insurance business amounted to Sh727.80 billion at the end of the review period, with government securities taking up 75.3 percent or Sh547.94 billion of the total amount. This is a big shift considering that in 2014, under 50 percent was in government paper.

Central Bank of Kenya (CBK) data showed insurance companies accounted for 7.2 percent of Kenya’s Sh5.601 trillion domestic debt by the end of September last year.

Insurers now face a headache this year as returns on government paper continue to fall, with indications of a recovery in the equities.

For instance, returns from 91-day, 182-day and 364-day Treasury bills averaged 9.59 percent, 10.02 percent and 11.33 percent respectively in the latest auction. The same papers fetched 15.98 percent, 15.97 percent and 16.1 percent respectively in the first auction of January 2023.

A recovery in the share prices at the Nairobi Securities Exchange could tempt insurers to start increasing their holding in equities. The industry’s exposure to listed shares was at six percent five years ago.

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Note: The results are not exact but very close to the actual.