Investment income lifts insurers’ half-year profits amid high claims
The increased returns from investments highlights the benefits insurers are reaping from their decision to cut stakes in equities in favour of government securities.
Increased investment income has helped insurers weather an environment of elevated claims to post higher net profit in the six months ended June 2024.
Data on the five insurance firms and one reinsurer listed on the Nairobi Securities Exchange show that investment income grew at a faster pace compared to the net insurance service revenue, helping them to post growth in net earnings.
The increased returns from investments highlights the benefits insurers are reaping from their decision to cut stakes in equities in favour of government securities. Returns on treasury bills and government bonds have been rising, earning investors more money.
CIC Insurance, Jubilee, Liberty Kenya, Sanlam, Britam and Kenya Reinsurance all posted growth in profits during the review period, defying the rise in claims that had slowed net revenue from insurance business.
For instance, Sanlam’s investment income, which is money received from investments such as government securities, fixed deposits and property, more than quadrupled to Sh2.29 billion from Sh550 million, lifting the insurer into a Sh282.2 million net profit from Sh171.9 million loss. This was despite Sanlam’s insurance service result —which is net revenue from the underwriting business-- falling 82.4 percent.
In the same period, Liberty’s investment income more than doubled to Sh2.1 billion, helping its net profit to nearly triple to Sh632 million from Sh213 million. This was despite a 44 percent drop in insurance service result as spending on claims doubled to Sh1.23 billion.
Insurers have been reporting elevated claims, especially in property and medical insurance, increasing their spending even as the growth in written premiums has lagged behind.
The rise in Britam’s investment income more than offset a 12.7 percent decline in its net insurance service result to Sh2.13 billion as claims paid out rose faster than premiums received.
One of the key shelters for insurers has been government securities, where they have been raising their exposure as they cut back on listed equities. Underwriters have been redirecting their investment portfolio towards government securities, investment property and term deposits, which have offered more stable returns.
From holding less than half of their investments in government paper in 2014, long-term insurers had pushed this to 82.4 percent by the start of this year compared to an average of 59 percent for general insurers.
Data from the Central Bank of Kenya that showed insurance companies accounted for 7.2 percent or Sh389.4 billion of Kenya’s Sh5.41 trillion domestic debt at the end of August this year.
