May 30, 2021
Following the release of the FY’2020 results by Kenyan insurance firms, the Cytonn Financial Services Research Team undertook an analysis on the financial performance of the listed insurance companies and the key factors that drove the performance of the sector. In this report, we assess the main trends in the sector, and areas that will be crucial for growth and stability going forward, seeking to give a view on which insurance firms are the most attractive and stable for investment. As a result, we shall address the following:
Section I: Introduction
Insurance uptake in Kenya remains low compared to other key economies with the insurance penetration in at 2.4% according to 2020 Financial Stability Report by Central Bank of Kenya (CBK). The low penetration level, which is below the global average of 7.2%, is attributable to the fact that insurance uptake is still seen as a luxury and mostly taken when it is necessary or a regulatory requirement.
The chart below shows the insurance penetration in other economies across Africa:
Section II: Key Themes that Shaped the Insurance Sector in FY’2020
FY’2020 was marked by the global social and economic shocks from the COVID-19 pandemic. Amid this operating environment, the insurance sector was impacted through i) increased insurance claims at 52.7% in Q4’2020 against 48.8% in Q4’2019, ii) reduction in premiums, and, iii) the poor performance in the stock market as evidenced by the NASI index declining by 8.6% in 2020. The Kenyan economy contracted in both Q2’2020 and Q3’2020 by 5.7% and 1.1%, respectively, with the financial services sector and insurance sector registering a reduced growth by to 5.3% in Q3’2020, from 7.6% growth in Q3’2019.
Key highlights from the industry performance:
On valuations, listed insurance companies are trading at a price to book (P/Bv) of 0.8x, lower than listed banks at 0.9x, their 15-year historical averages of 1.5x. This two sectors are attractive for long-term investors supported by the strong economic fundamentals.
In the last five years, the life insurance market in Kenya has experienced growth in both the level of direct premiums as well as in the equity held by the industry constituents shaped by the following themes;
The key themes that have driven the insurance sector include:
Although the industry has been slow in adopting digital trends, the onset of the COVID-19 pandemic in FY’2020 saw the adoption of digital distribution of insurance products as a matter of necessity. Consequently, many insurance companies increasingly took advantage of the available digital channels to drive growth and increase insurance penetration in the country. The current number of mobile data subscribers, according to Communications Authority of Kenya (CAK), stands at 40.9 mn and is expected to grow to 60.0 mn subscribers in 5 years. The high mobile penetration implies that Mobile phones offer a new way of distributing insurance products to the younger generation of consumers and those consumers that have not been served through traditional distribution methods. Given that the process of handling and inspecting claims manually is cumbersome and imperfect, the use of Artificial Intelligence (AI) assists in investigating the legitimacy of claims and identifying those that are fraudulent. An example is Liberty Holdings which has been using AI to rollout e-policy documents, self-services for retail customers and collect customer feedback.
To ensure that the sector benefits from a globally competitive financial services sector, the regulator has been working through regulation implementations to address some of the perennial, as well as emerging problems in the sector. The COVID-19 environment proved challenging especially on the regulatory front, as it was a balance between remaining prudent as an underwriter and adhering to the set regulations given the negative effect the pandemic. Regulations used for the insurance sector in Kenya include the Insurance Act cap 487 and its accompanying schedule and regulations. In FY’2020, regulation remained a key aspect affecting the insurance sector and the key themes in the regulatory environment include;
The move to a risk based capital adequacy framework will likely lead to capital raising initiatives mostly by the small players in the sector to shore up their capital. With the new capital adequacy assessment framework, capital is likely to be critical to ensuring stability and solvency of the sector to ensure the businesses are a going concern. In September 2020, Jubilee Holdings announced a strategic transaction with Allianz, a German multinational Underwriter and asset manager for the sale of 66.0% stake in the general business excluding medical for a total consideration of Kshs 10.8 bn. We expect that this amount will be ploughed back in to the company as part of the capital boost to grow other business lines. For more information, please see our analysis on the same on Cytonn Q3’2020 Markets Review
Section III: Industry Highlights and Challenges
Following the stable growth achieved by the insurance sector over the last decade, we expect the sector to transition into a more stable sector on the back of an improving economy and heightened regulations, which will enhance the capacity of the sector to sustain profitability. The following activities were undertaken by the Insurance Regulatory Authority (IRA), in line with their mandate of regulating and promoting development of the insurance sector;
In FY’2020, IRA issued 11.0 circulars ranging from COVID-19 Insurance Business Impact Template in Q2, Reporting of fire and engineering risks with sums insured above KES 1 billion and group life business. For example, in Q4’2020 the authority issued a circular numbered IC & RE 07/2020 to insurance companies, reinsurance companies and reinsurance brokers on dealings with reinsurers and reinsurance brokers that are not registered under the Insurance Act.
In FY’2020, 31.0 new or repackaged insurance products were filed by various insurance companies and approved by IRA. The onset of COVID-19 accelerated the repackaging of insurance products where 11 or 35.5% of the 31 products were medical plans, while life products accounted for 15 or 48.4% of the total repackaged products.
Industry Challenges:
Section IV: Performance of the Listed Insurance Sector in FY’2020
The table below highlights the performance of the listed insurance sector, showing the performance using several metrics, and the key take-outs of the performance.
Listed Insurance Companies FY'2020 Earnings and Growth Metrics |
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Insurance |
Core EPS Growth |
Net Premium growth |
Claims growth |
Loss Ratio |
Expense Ratio |
Combined Ratio |
ROaE |
ROaA |
Jubilee Insurance |
1.7% |
3.3% |
3.4% |
101.3% |
56.3% |
157.6% |
12.3% |
3.0% |
Liberty |
(2.0%) |
(2.9%) |
(0.4%) |
55.2% |
45.9% |
101.1% |
8.1% |
1.7% |
CIC |
(192.3%) |
(3.2%) |
(0.9%) |
71.4% |
50.1% |
121.5% |
(3.9%) |
(0.8%) |
Britam |
(357.2%) |
0.5% |
20.8% |
85.7% |
78.5% |
164.2% |
(39.2%) |
(6.9%) |
Sanlam |
(168.4%) |
21.3% |
18.5% |
83.7% |
54.2% |
137.9% |
(4.8%) |
0.3% |
*FY'2020 Weighted Average |
(157.9%) |
1.6% |
9.5% |
88.1% |
62.9% |
151.1% |
(9.4%) |
(1.3%) |
**FY'2019 Weighted Average |
6.4% |
10.2% |
16.3% |
79.4% |
56.8% |
136.2% |
11.9% |
3.3% |
*Market cap weighted as at 25/05/2021 |
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**Market cap weighted as at 17/07/2020 |
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The key take-outs from the above table include;
Based on the Cytonn FY’2020 Insurance Report, we ranked insurance firms from a franchise value and from a future growth opportunity perspective with the former getting a weight of 40.0% and the latter a weight of 60.0%.
For the franchise value ranking, we included the earnings and growth metrics as well as the operating metrics shown in the table below in order to carry out a comprehensive review:
Bank |
Loss Ratio |
Expense Ratio |
Combined Ratio |
Return on Average Capital Employed |
Tangible Common Ratio |
Jubilee Holdings |
101.3% |
56.3% |
157.6% |
12.3% |
24.2% |
Sanlam Kenya |
83.7% |
54.2% |
137.9% |
(4.8%) |
5.1% |
Liberty Holdings |
55.2% |
45.9% |
101.1% |
8.1% |
19.2% |
Britam Holdings |
85.7% |
78.5% |
164.2% |
(39.2%) |
11.2% |
CIC Group |
71.4% |
50.1% |
121.5% |
4.1% |
19.2% |
Weighted Average FY'2020 |
98.7% |
56.5% |
155.2% |
10.1% |
22.9% |
The Intrinsic Valuation is computed through a combination of valuation techniques, with a weighting of 40.0% on Discounted Cash-flow Methods, 35.0% on Residual Income and 25.0% on Relative Valuation. The overall FY’2020 ranking is as shown in the table below:
Insurance Company |
Franchise Value Score |
Intrinsic Value Score |
Weighted Score |
FY'2020 Ranking |
FY'2019 Ranking |
Liberty Holdings |
15 |
2 |
7.2 |
1 |
3 |
Jubilee Holdings |
19 |
1 |
8.2 |
2 |
1 |
Sanlam Kenya |
22 |
3 |
10.6 |
3 |
4 |
CIC Group |
20 |
5 |
11.0 |
4 |
5 |
Britam Holdings |
29 |
4 |
14.0 |
5 |
2 |
Major Changes from the FY’2020 Ranking are;
Section V: Conclusion & Outlook of the Insurance Sector
The sector was suffering from declining penetration even before the pandemic and this was worsened by the interruptions caused by the pandemic. However, the sector continues to undergo transition where traditional models have been disrupted, mainly on the digital transformation and regulation front. We expect a moderate growth in premiums as underwriters come up with products suited to the pandemic period mostly in the medical and life businesses. On the other hand, the recovery and opening up of logistical barriers currently at play will see an increased uptake of motor vehicle and marine insurance. We are of the view that insurance companies have a lot they can do in order to register considerable growth and improve the level of penetration in the country to the 2019 continental average of 7.2%, some of this include:
For the FY’2020 Insurance Report, please download it here
Disclaimer: The views expressed in this publication are those of the writers where particulars are not warranted. This publication is meant for general information only and is not a warranty, representation, advice or solicitation of any nature. Readers are advised in all circumstances to seek the advice of a registered investment advisor.