Insurance companies gain from rally in bank stocks

The rapid appreciation of banking stocks at the Nairobi Securities Exchange (NSE) is inflating the portfolios of insurers with significant investments in the lenders.

The market value of publicly-traded banks has risen by more than Sh50 billion in two weeks as the government moves to repeal the control of lending rates.

Investors are bidding up bank stocks on the policy change that is expected to widen the lenders’ profit margins by giving them the freedom to charge higher interest on relatively riskier borrowers.

Kenya Re, Britam Holdings and Old Mutual Life Assurance are among the insurers gaining from their holdings of bank stocks.

Britam, for instance, holds about 297 million shares of Equity Group whose share price jumped 6.5 percent in yesterday’s trading alone to Sh43.1. This saw Britam book a paper gain of Sh787 million yesterday.

Kenya Re has 18 million shares of Co-op Bank whose stock rose 6.8 percent to Sh13.3 while Old Mutual holds 9.2 million shares of KCB whose stock also rallied 6.8 percent to Sh48.1.

The rally in shares of banks and Safaricom could spread to the broader market, benefitting insurers whose earnings tend to swing in line with market cycles.

Safaricom has also seen its share price rally in recent weeks to reach highs of 29.60 yesterday.

Underwriters as a rule record considerable profit jumps in bull runs and lower earnings in bear markets.

Insurers, however, tend to have a long-term investment horizon and rarely realise losses from trading their stocks.

This has seen them receive dividends even as the long-term rally of equities adds to their net worth.