Cytonn Investments Management Limited has today released the H1’2019 Insurance Report, which ranks Jubilee Insurance as the most attractive insurance company from both a potential return and financial health perspective.
The report is themed “Regulation and Consolidation to Drive Attractiveness”, and analyzed the H1’2019 results of the listed insurers.
“The analysis is brought about by a need to make actionable recommendations to our investors, by considering which listed insurance companies are the most stable and also those which have the best franchise value and future growth potential,” said Shiv Arora, Cytonn’s Head of Private Equity.
“While the sector remains attractive with vast potential, we have witnessed the insurance sector grappling with low penetration, increased cases of fraudulent claims and the required increase in the capital following the adoption of a risk-based capital adequacy framework.”
David Ngugi, Investment Analyst at Cytonn Investments notes that “In recent times, the insurance sector has benefited from (i) convenience and efficiency through adoption of alternative channels for both distribution and premium collection such as Bancassurance and improved agency networks, (ii) advancement in technology and innovation making it possible to make premium payments through mobile phones, and (iii) a growing middle class, which has led to increased disposable income, thereby increasing demand for insurance products and services. These factors have been key in driving the growth of the sector.
We also expect more mergers within the industry as smaller companies struggle to meet the minimum capital adequacy ratios. We also expect insurance companies to adopt prudential practices in managing risk and reduction of premium undercutting in the industry as insurers will now have to price risk appropriately,” added David.
From the above:
- The average core EPS growth increased by 3.8 percentage points in H1’2019 to 3.2 percent from (0.6 percent) in H1’2018.
- The premiums grew by 5.7 percent in H1’2019, compared to a decline of 8.2 percent in H1’2018, while claims remained flat on a weighted average basis.
- The loss ratio across the sector decreased to 77.2 percent in H1’2019, from 84.2 percent in H1’2018, owing to the introduction of tough measures by market players to reduce fraudulent claims.
- The expense ratio decreased to 49.1 percent in H1’2019, from 60.2 percent in H1’2018, owing to a decrease in operating expenses through cost rationalization and awareness.
- The insurance core business still remains unprofitable, with a combined ratio of 133.7 percent as at H1’2019, compared to 144.4 percent in H’2018.
- On average, the insurance sector has delivered a Return on Average Equity of 5.7 percent an increase from 3.9 percent in H1’2018.
- Based on the Cytonn H1’2019 Insurance Report, we ranked insurance firms from a franchise value and from a future growth opportunity perspective with the former getting a weight of 40 percent and the latter a weight of 60 percent
- Important to note is that Kenya Re was not considered in the above rankings given it is a re-insurance company and not a listed insurance company that undertakes traditional life & general underwriting business.
From the above table:
Jubilee Holdings took the Top Position, ranking top in the franchise score category on the back of a strong combined ratio, indicating the better capacity to generate profits from its core business.
The only factor holding Jubilee back is its loss ratio, which is the highest among listed companies.
Sanlam Kenya took 2nd Position, on the back of a strong franchise score, driven by the highest Return on Average Equity.
Liberty & Britam Holdings came in 3rd and 4th Position, respectively, with weaker franchise scores, as a result of lower returns on assets and equity (Britam Holdings) and high loss and expense ratios (Liberty),
CIC came in 5th Position on the back of weak franchise rankings scores.
Read: Kenya’s Insurance Written Premium Hits Ksh 117.28 Billion