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Insurers Q1 profit falls 42pc on lower investment income
Many underwriters, especially those offering long-term insurance, have been increasing their investments in Treasury bills and bonds over time —with the asset class now accounting for more than 70 percent of their investment portfolios.
Insurers have posted a 42.2 percent decline in net profit to Sh4.92 billion for the first quarter of 2025 as claims surged and investment income reduced, marking a contrast from the previous year when higher returns lifted their earnings.
Data from Insurance Regulatory Authority (IRA) shows the retreat in net earning from Sh8.52 billion a year earlier came on the back of higher claims for both short term (general) and long term (life) insurance.
Life insurers settled claims and policyholder benefits worth Sh30.92 billion or 24.7 percent higher than the Sh24.79 billion paid last year.
General insurers saw a rise in claims to Sh25.93 billion from Sh24.79 billion, adding to other operating expenses that left them with an underwriting loss of Sh2.11 billion—being higher than the loss of Sh819.42 million a year earlier.
Life and general insurers saw their investment income drop by 22.5 percent to Sh41.55 billion from Sh55.79 billion to cut their net profits.
The reduced investment income has come on the back of falling returns on investments such as government paper and fixed deposits where most of the investments are concentrated.
The investment income for long term insurers declined to Sh36.98 billion from Sh45.18 billion while that of short-term insurers retreated to Sh4.58 billion from Sh7.61 billion to reflect the falling yields.
Insurers have always depended on investment income to lift themselves out of underwriting losses to post net profits. However, they now face a challenging balancing act in an environment of falling returns on investment and rising claims on written premiums.
Many underwriters, especially those offering long-term insurance, have been increasing their investments in Treasury bills and bonds over time —with the asset class now accounting for more than 70 percent of their investment portfolios.
The falling returns on government paper and fixed deposits has put insurers under pressure given that they have been cutting their exposure in equities, which is now the asset class where returns are generally rising this year.
For instance, returns from 91-day, 182-day and 364-day Treasury bills averaged 7.97 percent, 8.01 percent and 9.54 percent respectively in the latest auction. The same short-term papers fetched 16.02 percent, 16.9 percent and 16.85 percent, respectively in July last year.
Returns on bank deposits are also on a decline, coming from the 22-year high of 11.48 percent in June last year to 8.07 percent at the end of July this year in an environment of falling Central Bank Rate.
The NSE market capitalisation has grown by 45.2 percent or Sh877.51 billion to Sh2.817 trillion since the start of the year, positioning itself as one of the best performing investment classes this year.
However, insurers held 2.1 percent of their investment portfolio at the NSE at the end of last March compared with the peak of 20 percent in 2014 when government securities were accounting for 45 percent.
Benefiting from the NSE rally will require increasing their equities portfolio while ensuring they remain liquid enough to settle claims.
Insurers around the world invest the majority of their funds in bonds, especially government securities, because they are required to be risk-averse and invest prudently in assets that provide stable, predictable returns and a steady stream of income.
