NAIROBI, Kenya, Oct 16 – Kenya Reinsurance has been ranked the most attractive insurance company in terms of business strength and return on investment potential.
A Cytonn report assessing the results of listed insurance companies in the first half of 2017 reveals innovation and operational efficiencies are some of the factors driving the sector in the face of heightened regulation and contracting margins.
The report themed – Sustaining Profitability in an Era of Heightened Regulation – measures both the franchise value and intrinsic value scores of the companies with a view of analyzing which insurance firms are the most attractive for investment based on their stability and future growth.
Cytonn’s Investments Analyst, Caleb Mugendi, says technology and innovation is one of the key factors that are shaping the performance of the sector.
“We also expect improved product innovation and operational efficiency to drive the growth of the sector amidst the heightened regulation. The growth of the middle class, adoption of alternative distribution channels and regional expansion are also key contributors to the growth of the sector,” says Mugendi.
Kenya Re strong ranking is partly due to its role as a reinsurance firm, explains Mugendi.
Among direct insurance companies, Jubilee Holdings jumped one place from third position same time in 2016 to second place in 2017 while Liberty Holdings was the most improved to rank third from fifth in 2016.
“Liberty Kenya turnaround was driven by a better return on average tangible common equity, improved levels of diversification as measured by investment income to total income ratio, and high potential return on intrinsic valuation,” notes the report.
Sanlam retained 6th position mainly as a result of low return on tangible common equity, high loss ratio, low underwriting leverage, and a high reserve leverage while Britam Holdings dropped 2 positions to Position 4 from Position 2 in FY’2016 Insurance Sector Report.
Overall, Kenya’s listed insurance companies recorded a 5.6 pc decline in core Earnings Per Share growth, compared to a growth of 69.4pc in H1’2016.
Loss ratio across the sector rose to 72.7 pc from 66.5pc last year, despite introduction of tough measures by market players to reduce fraudulent claims, while the expense ratio dropped marginally to 54.3pc from 55.5pc in H1’2016, owing to a decrease in operating expenses amidst a robust growth in net premiums earned.
On average, the insurance sector has delivered a Return on Average Equity of 10.9% a marginal improvement from 9.0% in H1’2016.
“Following the adoption of a risk-based framework for capital adequacy assessment, the sector is set to experience an increase in mergers and acquisitions, and the move is also likely to lead to capital raising initiatives by some players in the sector to shore up capital.”
Last month, Britam Holdings announced a deal to raise Sh5.7Bn from Africinvest III, a special purpose vehicle (SPV) managed by Africinvest Capital Partners Management II.