Data from the Insurance Regulatory Authority shows that between 2015-2020, Britam’s general insurance business in Kenya recorded a net underwriting loss of Sh2.67 billion.
For starters, Britam operates 12 business classes under its general insurance offering.
In terms of business classes, it had the largest personal accident book.
Britam Insurance #ticker:BRIT appears to be building a strong general insurance franchise outside Kenya. The company’s own disclosure shows that in 2020, its general insurance businesses in Tanzania, Uganda, Malawi, Mozambique, South Sudan and Rwanda contributed to half of the group’s general insurance gross premiums, which is quite commendable.
For starters, Britam operates 12 business classes under its general insurance offering. In Kenya, the general insurance business held a six percent market share in 2020, being the fifth largest. In terms of business classes, it had the largest personal accident book. But the business has struggled to return underwriting capital to shareholders.
Data from the Insurance Regulatory Authority shows that between 2015-2020, Britam’s general insurance business in Kenya recorded a net underwriting loss of Sh2.67 billion, largely driven by tenuous underwriting quality, especially on motor vehicles and high costs.
On the other hand, the six regional markets combined printed more general insurance profits than Kenya in 2020. This now means that Britam’s next growth story, as far as non-life insurance is concerned, lies outside Kenya.
Indeed, the non-life market in Kenya has several structural issues that have narrowed any upsides. It is full of price undercutting and fraud (seen through the high loss ratios). Just to give more perspective, data from the regulator shows that the general insurance business in Kenya recorded a combined underwriting loss of Sh1.8 billion in 2020, which was an improvement from the Sh3.2 billion loss recorded in 2019.
Essentially, the return on capital is negative. On the other hand, data from the regional markets, specifically Rwanda, Malawi, Tanzania and Uganda, shows that general insurance recorded an underwriting surplus on account of lower claims ratios, in relative terms.
In Malawi, the claims ratio averages at 55 percent. In Uganda, the net claims ratio averaged 42 percent between 2013-2020 while in Tanzania, the ratio averaged 50 percent over the past five years.
In Rwanda, the claims ratio averaged 58 percent between 2015 and 2021. In contrast, the net claims ratio in Kenya averaged 62 percent between 2013-2020.
Inclusive of distribution and management expenses, the non-life market in Kenya is akin to a revolving door. Beyond the underwriting performance, the six markets also hold more scope for growth.
Tanzania and Malawi continued to record the fastest annual growth rates in gross written premiums pre-pandemic, at 12 percent and 24 percent respectively, on average terms. By comparison, Kenya’s pre-pandemic growth rates averaged nine percent between 2013-2019. In Tanzania, a draft national insurance policy document is in the final stages.
Execution of the document presents an additional growth story over the long term. Broadly, and as part of the next five-year strategy, Britam shareholders should consider additional capital externalization towards these regional businesses because this is where the next growth story lies.
The document aims to respond by creating new business opportunities for the sector, as well as increasing public awareness, promoting innovative products, enhancing consumer protection, and introducing a new regulatory framework and supervisory structure.
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