Insurers switch land for cash as regulators tighten capital rules

 

CIC General Insurance MD Fred Ruoro (left) demonstrates the monthly Easy Bima insurance cover onboarding process to the CIC GCEO Patrick Nyaga. [File, Standard]

Kenyan insurers are accelerating a strategic shift away from brick and mortar assets, offloading expensive land holdings to boost liquidity and comply with regulatory demands for assets that can be quickly converted to cash

CIC Insurance Group’s recent Sh1.8 billion land sale underscores a broader industry recalibration. The listed insurer this month completed the disposal of 50 acres adjacent to Tatu City in Kiambu and 100 acres in Kajiado, injecting substantial cash into its balance sheet.

The move also reflects the growing pressure from the Insurance Regulatory Authority (IRA), which applies a hefty 30 per cent discount to land assets when calculating an insurer’s capital adequacy, viewing them as illiquid and difficult to value in a crisis. 

“The two transactions will inject Sh1.8 billion to the balance sheet, further strengthening the liquidity and overall performance of the Group,” CIC Chief Executive Patrick Nyaga said in a statement announcing the deal.

At its core, the strategy comes down to a simple industry imperative, say insiders.

This includes the need for cash to pay claims and agility to optimise portfolios.  Unlike shares or government bonds that can be sold within minutes on a stock exchange, selling land is a protracted affair, often taking months or years to find a buyer and complete the transaction.

Regulators, therefore, force insurers to hold a buffer of “liquid assets” – those easily converted to cash – to ensure policyholders are paid promptly when disaster strikes. “We will use the money to reduce the debt, which means our finance costs will come down significantly and the balance sheet structure will be improved,” Nyaga explained, noting that proceeds would be deployed to cut a Sh5.2 billion loan from Co-operative Bank that had been secured against the Kiambu property.

The sale highlights a fundamental tension in the investment strategy of insurers. While land can deliver solid long-term capital appreciation, CIC’s remaining portfolio still includes 200 acres near Tatu City and 495 acres in Kajiado

It generates no income from the land and cannot be easily used to settle claims. The Kiambu land, despite its prime location adjacent to a burgeoning special economic zone, was effectively “dead capital” until sold.

The regulatory arithmetic is unforgiving. When calculating their statutory reserves, insurers must discount land values by 30 per cent, meaning a piece of land notionally worth Sh1 billion contributes only Sh700 million to their capital compliance.  Cash or government securities, by contrast, are counted at full value.

This disparity creates a powerful incentive for companies to prune their property portfolios, particularly when interest rates on fixed-income securities offer attractive yields.

South African rating agency GCR Ratings had flagged CIC for having excessive capital concentration in real estate, adding further impetus to the disposals.

The strategy forms part of a wider turnaround at CIC, which returned to profitability in 2021 after a period of losses, and saw 2024 profit after tax nearly double to Sh2.85 billion.

The group is now subdividing its remaining large land parcels into smaller, more marketable plots to unlock further value, while also declaring a dividend of Sh0.13 per share and a 1:10 bonus issue for shareholders on record as at 22 April 2025.