Reinsurer optimistic of sector prospects despite headwinds

"Locally, uptake of insurance is expected to be hampered by the new tax reforms, especially from the second half of the year 2023 onwards," he said.

Dr Wachinga noted that the perception of insurance as a luxury also continues to hurt the sector's growth prospects.

He called for continuous awareness and sensitisation to change this perception besides enhancing regulation and supervision as well as adequate pricing of risks to make insurance more inclusive and affordable.

"Insurance is still considered a secondary rather than a basic need," said Dr Wachinga during an interview in Nairobi.

According to Kenya Re's last audited financial statements, the reinsurance business in Kenya has been on an upward trajectory despite the current tough operating environment.

Looks promising

The company's revenues grew by 12.2 per cent to Sh309.8 billion in the 2022 financial year from Sh276.1 billion registered in 2021.

Dr Wachinga said despite the economic turbulence, revenue expansion is expected to continue, supported by GDP growth, technological innovation, a well-established regulatory framework and product diversification.

According to data from the Association of Kenyan Insurers (AKI), the reinsurance business from five regulated reinsurance companies looks promising.

The five re-insurers recorded audited net premium income of Sh2.57 billion.

The related gross loss stood at 108.8 per cent, equivalent to Sh2.80 billion, with the management expense ratio (including cedent acquisition costs) standing at 37.1 per cent equivalent to Sh955 million.

The bulk of this performance was group life at 94.7 per cent of the sector's portfolio.

On the other hand, the short-term business posted a net premium income of Sh31.74 billion over the same period.

The portfolio recorded a loss ratio of 51.8 per cent or net incurred claims of Sh16.45 billion.

Direct expenses (cedent acquisition costs and management expenses) stood at Sh12.03 billion or 37.9 per cent, resulting in a combined ratio of 89.7 per cent.

Non-life business thus recorded an operating profit of Sh4.34 billion in the 4th quarter of 2022, an 18.6 per cent jump from Sh3.66 billion in 2021.

Kenya Re was established in 1970 under Kenya Reinsurance Corporation Act but started operations in 1971.

The Corporation's initial mandate from its principal shareholder (the government of Kenya) was to grow the local insurance market, regulate the local insurance industry, build local expertise and capacity in insurance and reinsurance, and stem capital flight resulting from local insurers placing reinsurance with international reinsurers.

Surplus fund

However, the regulatory role was transferred to the Insurance Regulatory Authority following its establishment in 2006.

By law, Kenyan insurance companies are required to place 20 per cent of their treaty reinsurance business with the Corporation.

This technical capacity allows these firms to take additional risks and protects their balance sheets. By extension, the Corporation's sufficient capacity assist in invested also in the domestic market.

The core business of insurance firms is risk management with surplus funds invested in varied investment options.

The money that the insured gives as premium payments, is invested by the insurance companies in real estate, other financial institutions like banks, mortgage-backed securities, and dividend-paying stocks.

When the economy is doing well, the returns on these investments made will be good and insurance companies are less likely to challenge their claims settlement processes.

Currently, insurance penetration, which is a measure of gross premium to GDP, in Kenya stands at 2.4 per cent and is way below the global average of 7 per cent.

Dr Wachinga said the sector can grow if the right measures are put in place.