Kenya Re risks losing Sh8bn premiums on defaults rise


Kenya Re managing director Jadiah Mwarania. FILE PHOTO | NMG

Kenya Re #ticker:KNRE has disclosed that insurance companies and brokers have defaulted on Sh8.57 billion premiums, hurting the profitability of the Nairobi Securities Exchange #ticker:NSE -listed firm which has had to make provisions for the amounts receivable.

The company said in its financial statement for the year ended December 2021 that the unremitted premiums had risen by Sh2.7 billion in the period, indicating that insurers are either struggling for funds or have become lax in their obligations to the reinsurer.

Kenya Re makes provisions for the unremitted premiums in its balance sheet, and when some of these impairments are realised, they impact negatively on its bottom line.

“Delays in receiving outstanding reinsurance premiums continue to pose credit risk to the group. This is mainly from outstanding retro recoveries as well as outstanding premium receivables from cedants and brokers,” said Kenya Re.

“As at December 2021, gross receivables stood at Sh8.57 billion against provisions of Sh3.89 billion as compared to December 2020 where gross reinsurance receivables stood at Sh5.865 billion against provisions of Sh3.87 billion.”

The listed reinsurer saw its net profit for the year rise marginally by 0.8 percent to Sh2.97 billion, after incurring an impairment hit of Sh909.4 million for bad debts relating to the unpaid premiums—up from Sh227.8 million in 2020.

Its gross written premiums rose by 10 percent to Sh20.36 billion from the Sh18.54 billion reported in 2020, while net claims incurred fell by 15.5 percent from Sh13.5 billion to Sh11.4 billion.

The firm’s earnings from investments retreated by 3.4 percent to Sh3.66 billion in the period, attributed to the effect of Covid-19 on the markets during the period.

These receivables and their allowances are written off when there is no realistic prospect of future recovery, similar to the way a lender would treat bad loans.

The reinsurer said that domestication of reinsurance in markets such as Uganda is eating into its pie, especially where these countries follow up the creation of national reinsurers with legislation ring-fencing their business in their markets, better known as mandatory cession.

Kenya Re itself enjoys mandatory cession of 20 percent of all reinsurance business in the Kenyan market, practically guaranteeing it a steady flow of business and protecting its market share in an industry that is attracting more players on the continent.

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