Insurers face tough times as profits plummet 64 per cent

Long-term business recorded Sh434.5 million in first quarter against Sh1.2 billion last year.

Insurers in long-term business began the year on a grim note with their first quarter profits tumbling by more than half compared to a similar period last year.

According to data from the Insurance Regulatory Authority (IRA), the insurers saw their profits dip from Sh1.2 billion in March 2017 to Sh434.5 million this year, representing a 64.1 per cent drop.

Commissions paid by companies in the long-term insurance business - comprising life cover, annuities, investments, permanent health and pensions - went down from Sh1.4 million to Sh1.2 million, a 6.6 per cent drop, which underlies the tough business climate the insurers found themselves in.

A drop in commissions paid to insurance agents means they brought in less business.

Net premium income also went down by a marginal 0.3 per cent from Sh19.7 million to Sh19.6 million.

IRA Chief Executive Geoffrey Kiptum said it was not clear what had caused the decline.

“The drop has been quite huge for long-term business. We are trying to engage our actuaries and understand what could have led to it,” Mr Kiptum told The Standard on the phone.

The IRA data shows that of the 25 companies in long-term business, Britam Life Assurance made the most profit, posting Sh117 million, while Sanlam Life Assurance recorded the biggest loss at Sh390 million.

While lacklustre performance was recorded in the segment, a more positive trend was observed in general business where underwriters posted a 22 per cent increase in net profits for the period under review.

Profits grew from Sh986.8 million in March 2017 to Sh1.2 billion in March 2018.

This growth should, however, be viewed with caution given that underwriting earnings continued to drop from Sh453 million in March last year to a bigger loss of Sh1.5 billion this year.

An underwriting loss is realised when what an insurance company spends on settling more claims and other liabilities surpasses the premiums it collects.

Other investments

The profits realised by the insurers, thus, did not come from their core business, which is taking premiums while settling claims.

Instead, most of it came from other investments that included stocks at the Nairobi Securities Exchange and Government paper. 

According to the IRA data, 66.4 per cent of the industry business is from general insurance premiums.

“The proportion of general business is increasing as a result of higher growth in the general business premiums compared to long-term insurance premiums,” IRA notes in its quarterly industry report.

The industry also saw its asset base grow by 14 per cent to Sh624.2 billion as at the end of March 2018 from the Sh547.4 billion held as at the end of March 2017.