Kenya Re eyes regional market to drive growth

Kenya RE Managing Director Jadiah Mwarania.
The State-owned reinsurance company Kenya Re will be marking its 50th anniversary next year at a time the company is facing challenges in the local and regional markets.

Managing Director Jadiah Mwarania talked to Financial Standard about the company’s strategy to navigate the increasingly competitive environment and spread its operations across the region.

The insurance sector has been performing poorly in the recent past, and not much progress seems to be made in terms of broadening insurance penetration. What are some of the reasons for this?

Last year was extremely tough for all the insurance players not only in Kenya but across Africa. The profits were low on the underwriting side, where we saw a lot of high loss ratios in some key classes of the business and this affected the profits.   

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There was also a lot of competition that had an effect on price undercutting. In this case, risks are not being priced appropriately, leading to contraction of premiums and slower growth. We have also been experiencing a bearish market that has undermined investment income.   

The interest rate capping continues to haunt the investment environment and the returns are less than one would expect. Going forward, we expect this to persist if the caps are not removed. This year is likely to be better.

Next year, compulsory cessions you enjoy under the insurance laws will expire. What does this mean for Kenya Re? Any plans to seek extension?

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These are a source of income for the corporation and constitute about 36 per cent or so of the overall income. The impact would be there in theory if they were all removed but that is also assuming every insurance company in Kenya would withdraw to zero, which we think is not a realistic outcome.

We have been working to position the business to sustain itself competitively in the market. Part of our strategy that we review each year is to reorient all aspects of the business needs to the realities of the market.   

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We believe if those cessions were removed, maybe there will be some impact in terms of losing some shares here and there but we have also put in place strategies to deal with that.  We have the option to lobby the State for an extension as has been the practice since the 1970s.

Last year, you said Kenya Re was looking at growing its footprint outside Kenya. How far are you with this plan?

We want to invest some of our resources offshore for diversification of the investment portfolio and also to meet some requirements of rating agencies.  While there is a gain in diversifying the portfolio, the trade-off is of low returns because outside the country, the returns are lower.  

We have a strategy to enter other markets across Africa because we are familiar with it and there is a lot of opportunities, given the low insurance penetration rates. So far, we are at about 50/50 in terms of the income that comes to the company where half of it is generated from outside the country. This year, we are going to set up a subsidiary in Uganda in response to regulations on the domestication of business where firms are required to prioritise re-insurance firms residing in those markets.

Several other countries including Ethiopia, Nigeria, Ghana and Zambia are also talking of domesticating. So, the idea is to increase our presence by growing our market share in these countries and getting onboard new products.

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How has technology transformed the daily operations of the business and what are some of the risks and opportunities?

Technology has transformed operations throughout the entire value chain from product offering, distribution, accounting and even processing claims in-house.   

The impact of social media, for example, on products and brands has been significant.   

We have seen a lot of innovation catering to the youthful demography, such as insurance aggregators that help users compare rates for different product classes from the various providers. Such platforms mean roles like insurance agents will have to be reimagined in the near future.

What are the regulatory challenges affecting the business?

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When it comes to products such as marine insurance, for example, local firms have not realised the full benefits because of a lapse in regulatory oversight.  

Reinsurance for marine products should only be issued by companies residing in Kenya according to the regulations and this includes both exports and imports.

This is however not the practice currently and we believe the regulator has not been keen on enforcement, meaning the insurance business is being exported.   

Another lost opportunity is in the large construction deals that Kenya is signing with multilateral partners like China.  

In those discussions, insurance is included in both the financing and the project itself. However, financing is done by banks in China as well as the insurance and reinsurance business and that, to me, is another lost opportunity.

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