Insurers’ net profit rose 4.8 times to a record Sh47.17 billion for the nine months to September 2024, buoyed by increased investment income and lower underwriting losses signalling one of the best years for underwriters.
The latest Insurance Regulatory Authority (IRA) data shows the rise in net profit was from Sh9.73 billion posted in the preceding similar period.
The nine-month net earnings are 3.6 times higher than the Sh13.33 billion posted in the full year ended December 2023, making it one of the best performances for the sector that was last year hit by floods and anti-government demos that manifested in higher claims in various classes of insurance including property.
The improved profitability was on the back of investment income—which is money received from investments such as State papers, fixed deposits, and property—rising by 67.7 percent to Sh77.44 billion from Sh46.18 billion.
In addition, insurers’ underwriting results—the difference between premiums collected and claims and expenses paid—, recorded an improvement. Insurers closed the period with an underwriting loss of Sh1.62 billion, marking a 60.4 percent improvement from Sh4.09 billion losses in the preceding similar period.
The underwriting results improved mainly on the back of general insurers witnessing reduced losses from covering commercial and private vehicles as well as providing medical insurance.
Underwriting losses from insuring private motor vehicles reduced to Sh1.12 billion from Sh2.39 billion while that from commercial vehicles narrowed to Sh1.63 billion from Sh3.21 billion.
Medical insurance emerged from Sh1.39 billion underwriting loss to post an underwriting profit of Sh1.18 billion.
Investment income has emerged as a big driver of insurers’ profits. Many insurers have been going for investment classes with higher and relatively stable returns, even as they cut exposure on the Nairobi Securities Exchange to below three percent of their investment portfolio.
The industry’s investment portfolio rose by 15.2 percent to Sh1.028 trillion at the end of September 2024 from Sh892.83 billion at a similar time in 2023, with Sh729.93 billion or 70.9 percent being in government paper. This was followed by Sh116.53 billion or 11.3 percent in term deposits.
Preference for government securities is a big shift for insurers considering that in 2014, under 50 percent of their money was in this investment class.
However, insurers 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 8.84 percent, 9.08 percent, and 10.46 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.
