The average core Earnings Per Share (EPS) growth for listed insurers increased by 3.8 percent in the first half of 2019 to 3.2 percent, from -0.6 percent in the first half of 2018, a new report has indicated.
The report by Cytonn Investments Management Limited released today ranks Jubilee Insurance as the most attractive insurance company from both a potential return and financial health perspective.
Sanlam Kenya took the second position, on the back of a strong franchise score, driven by the highest Return on Average Equity, while Liberty & Britam Holdings came in third and fourth 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 fifth position on the back of weak franchise rankings scores.
The report is themed “Regulation and Consolidation to Drive Attractiveness” analyzed the H1’2019 results of the listed insurers.
According to the report, 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 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.
“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 capital following 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 convenience and efficiency through adoption of alternative channels for both distribution and premium collection such as Bancassurance and improved agency networks and advancement in technology and innovation making it possible to make premium payments through mobile phones.”
Other contributing factors include a growing middle class, which has led to increased disposable income, thereby increasing demand for insurance products and services.
“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,” predicts David.