Most Stable,Unstable And Attractive Insurance Firms In Kenya

The Kenya Insurance Balance sheet currently stands at KES 314.4 billion as of FY’2016, from Kshs 277.0 in FY’2015, recording a 13.5% year to year growth , report shows.

Unveiled today, the FY2016 Insurance Sector report  by Cytonn investment  has listed some of the most stable and attractive insurance companies in the country basing its research on the franchise score that measures the broad and comprehensive business strength of the company and the intrinsic score that measures the total return potential.

          The Insurance ranking assigns a value of 1 for the best performing insurance company, and a value of 6 for the worst

The report ranks Kenya Reinsurance as the most attractive insurance company from a financial health perspective and intrinsic value perspective, while Sanlam Kenya ranked lowest, ranking lowest in both franchise and intrinsic value score.

Kenya Re emerged top improving from position 2 on the back of a low combined ratio as well as a high solvency ratio  while CIC dropped from top position to position 4, affected by a poor return on average tangible equity, low levels of diversification and high reserve leverage .Sanlam retained its bottom position plagued by poor return on tangible equity, low solvency ratio, low underwriting leverage, and a high reserve leverage

              Liberty Holdings was the leader in intrinsic value ranking followed closely by Britam Holdings with total potential returns of 21.3% and 20.8%, respectively

On potential total return, Liberty Holdings and Britam Holdings held the first and second positions with total potential returns of 21.3% and 20.8%, respectively, while Sanlam Kenya registered the lowest total potential return, with a potential downside of 14.9%.

Comprehensively, Kenya Re maintained the top position ranking top in the composite score category supported by a strong franchise value score  as Sanlam Kenya came in at position six in the composite ranking similar to H1’2016

     Table showing Franchise value assigned a weighting of 40% while the intrinsic value was assigned 60% weight,

Speaking during the report release, Cytonn’s Chief Investments Officer Elizabeth N. Nkukuu, CFA, said that the analysis is to determine which insurance companies are the most attractive and stable for investment from a franchise value and from a future growth opportunity perspective.

“Technology and innovation is a driving factor in the sector and thus we expect improved product innovation and operational efficiency to drive profitability and thus 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,” said Elizabeth.

From the report, total gross premiums stood at KES 212.4 billion as at FY’2016, with general business accounting for 64.5% of the total gross written premiums , the Gross re insured premium accounts for 3.2% of the total industry written premiums.

Non listed insurance companies, with 42.4% of industry assets, control 59.0% of gross premiums

The industry Retention Ratio for the life business stands at 92.5% while the general business stands at 73.3% • General business has registered a much stronger 6 year average growth in premiums, posting a 15.2% CAGR compared to 14.3% growth in Life business. However, in 2016, Life business registered a stronger growth of 19.3%, while general business registered a growth of 6.5%

Despite the growth, the research dubbed FY2016 Insurance Sector Report carried by Cytonn Investment indicated that increase in regulation in the sector, high expenditure levels and inadequate product innovation among the key challenges leading to inefficiency in operations to a larger extent affecting its growth hence putting the sector into risk in terms of profit making.

According to the report, the heightened regulations in the sector would lead to changes in capital requirements, as insurance companies will be required to hold capital that matches the risks they insure, while on the other hand high expenditure would mean adopting alternative distribution channels, especially through mobile, that will reduce expenditure on collecting premiums and disbursing claims.

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