Kenya’s insurance sector return on equity improves marginally to 10.9 pc

Kenya’s listed insurance industry has recorded an average decline of 12.5 percent in core earnings per share, from an average gain of 69.4 percent in H1’2016  according to a weekly investor brief.

Cytonn Investments notes that the sector experienced marginal improvement in operational efficiency with the expense ratio declining to 54.3 percent from 55.5 percent in H1’2016 despite the loss ratio rose to 72.7 percent from 66.5 percent ‘indicating increased claims in the industry’.

“This resulted to the industry average combined ratio increasing to 127.0 percent from 122.0 percent in H1’2016. On average, the insurance sector has delivered a Return on Average Equity of 10.9 percent a marginal improvement from 9.0 percent in H1’2016.”

The note indicated that, Jubilee Holdings and Liberty Holdings recorded impressive growth while Britam Holdings was the worst hit driving the weighted market average core EPS downwards due to change in valuation methodology on the long-term insurance claims.

Jubilee Holdings H1’2017 results, recorded an increase in Core earnings per share (EPS) by 23.2 percent coming in at Kshs 26.1, from Kshs 21.2 in H1’2016, attributed to a 30.1 percent growth in total income to Kshs 14.9 bn from Kshs 11.4 bn in H1’2016 despite a 31.0 percent growth in total expenses to Kshs 13.1 bn from Kshs 10.0 in H1’2016, with the increased profitability partly attributed to other comprehensive income at Kshs 0.3 bn, having been recorded at Kshs (0.4) bn the same time last year.

Liberty Holdings recorded an increase in Core earnings per share (EPS) by 18.9 percent coming in at Kshs 0.8, from Kshs 0.7 in H1’2016, attributed to a 7.2 percent growth in total income to Kshs 5.0 bn from Kshs 4.7 bn in H1’2016 despite a 6.7 percent growth in total expenses and commissions to Kshs 4.5 bn from Kshs 4.2 in H1’2016.

Sanlam Kenya recorded an increase in Core Earnings per Share (EPS) to Kshs 0.6 from Kshs (0.9) in H1’2016, against our expectations of an EPS growth to Kshs 0.1.

The increase in EPS is attributed to an 18.8 percent increase in total income to Kshs 4.3 bn from Kshs 3.6 bn in H1’2016 outpacing a 10.2 percent increase in total expenses to Kshs 4.1 bn from Kshs 3.8 bn.

However, Britam Holdings reported a decline in earnings per share of 44.1 percent to Kshs 0.5 from Kshs 0.9 in H1’2016. This was attributed to a 33.3 percent growth in total expenses to Kshs 13.5 bn from Kshs 10.1 bn in H1’2016, despite a 15.8 percent increase in total revenue to Kshs 14.7 bn from Kshs 12.7 bn in H1’2016.

“There was a change in the methodology used to account for long-term insurance liabilities to the Gross Premium Valuation from the Net Premium Valuation as per the IRA requirements, which had a one-off effect of reducing the claims in H1’2016, due to the decline in Long-Term Insurance Liabilities by Kshs 2.2 bn in the period brought about by the change, and hence the normalisation in net insurance benefits and claims in H1’2017. Britam, however, did not disclose the full impact of the valuation change on their Income Statement,” Cytonn States.