Slow economy hits underwriting business

By Jackson Okoth

A sharp fall in investment income and value of assets held by insurance companies is forcing many players in this sector to change tact.

This is happening as share prices at the Nairobi Stock Exchange (NSE) remain depressed, causing discomfort in the insurance sector, considered one of the largest institutional investors at the bourse.

Although a full view of the industry’s performance last year is not yet out, preliminary figures and published results of various firms indicate significant declines in investment incomes and loss in asset values.

"A poorly performing Nairobi Stock Exchange has put pressure on investment income and asset values of insurance companies, some falling by more than 50 per cent," says Mr Nelson Kuria, managing director, Co-operative Insurance Company of Kenya Limited.

More insurers are making entry into the low-income end of the market at a time when commercial banks, microfinance institutions and phone companies are already courting clients in this segment.

"This fall in investment incomes is a wake up call for insurance companies to go back to the basics — that is risk underwriting, which is our core business," says Kuria.

More insurers are making entry into the low-income end of the market. [PHOTO: FILE]

The list of risk underwriters already expanding their business into this market includes CIC, CFC Life, Old Mutual, Madison Insurance and Kenya Orient.

During the last few months, CIC has been able to launch six new products, specifically targeted at the low-income members of co-operatives and the informal sector.

CIC leads the pack with a three-in-one product, which covers medical, personal accident and funeral expenses, all at a cost of Sh10 per day.

Mixed fortunes

A closely competing brand to this offer is Kenya Orient’s personal accident cover, providing a benefit of Sh100,000, covering a 24-hour period at a premium of Sh30, deducted from a customer’s mobile phone credit.

Also eyeing the low-income customer is CFC Life, which offers Lifevest, a product that offers life cover, savings, personal accident and increasing term assurance, with minimum premium of Sh2,500 per month for the low-income variant.

Those in the middle and high-income segments have a Lifevest brand, whose minimum premium is Sh5000 per month.

As more insurance companies shift focus to the underwriting of risks in the unexplored informal segments, the industry’s outlook remains grim.

A sample of published financial results show mixed fortunes for many, with losses or profits made depending on size of the business and volumes.

Kenindia Assurance Company tops the list of turnarounds, from a loss of Sh598 million in 2007 to a pre-tax profit of Sh252.8 million in 2008 and APA which came from a loss of Sh3.5 million in 2007 to pre-tax profit of Sh259.9 million this year.

On the list of firms that have experienced a slowdown included Heritage, whose pre-tax profit fell to Sh304.5 million, last year from Sh469 million in 2007, Pacis whose pre-tax declined from Sh26.6 million to Sh3.7 million, General Accident Sh215 million to Sh145.9 million.

Worst hit insurers

Among the worst hit insurers was Pan African Insurance Holdings, whose earnings before tax fells from Sh188 million in 2007 to a loss of Sh 5.7 million last year.

Although the company says that its surplus of 2007 of Sh147 million had been restated by an amount of Sh54 million to accommodate tax which has since been paid to KRA, it blames a difficult political and economic environment for the poor performance.

For instance, it cites the deficit last year of Sh96 million to unrealised investment losses on shareholders’ assets as well as share loss of an associate.

With the economy expected to slow down further this year, the insurance sector could see its growth shrink to about 10 per cent, 15 per cent last year.