BUTTERFLY EFFECT

Rising claims eroding insurers earnings - IRA report

Even so, some underwriters such as Jubilee have recorded an increase in profits despite high claims

In Summary
  • Insurance companies received over 2.1 million claims in the second quarter of 2021.
  • The continued increase of claims has seen the underwriters record profit dips as the firms settle the claims.
Wreckage of a car at an accident scene
FAKE LUXURY?: Wreckage of a car at an accident scene
Image: FILE

Underwriters in the country are still faced with increased claims eating into their profitability and increasing expenses as Covid-19 continues to slow down the economy.

According to the latest claims report released by the Insurance Regulatory Authority (IRA), insurers received over 2.1 million claims in the second quarter of 2021, a 19 per cent increase compared to the first quarter of the year (1.7 million).

The increase in claims is illustrated by a 64 per cent dip in profit at Kenya Reinsurance Corporation in its half year results, meaning the firm shouldered more heat from the insurance firms.

Kenya Re reinsures several insurance companies in Kenya and Africa.

Reinsurance companies help insurers spread out their risk exposure.

Insurers pay part of the premiums that they collect from their policyholders to a reinsurance company, and in exchange, the reinsurance company agrees to cover losses above certain high limits.

The re-insurer posted a Sh762million profit down from a Sh1.6 billion profit posted in the same period last year.

Analysts from Standard Investment Bank noted that higher claims during the period accounted for the drop in profitability.

The re-insurer's claims increased 22 percent to Sh6.283 billion, up from Sh5.148 billion during the same period last year.

Cedent acquisition costs increased by 3 per cent from Sh2.146 billion in June 2020 to Sh2.215 billion in June 2021 .

A cedent is a party in an insurance contract who passes the financial obligation for certain potential losses to the insurer.

The increase in the cedent acquisition costs means Kenya Re had to incur more financial costs in the period to pay the premiums of all insurers.

This saw gross written premiums grow by 6 per cent from  to Sh9.59 billion in June 2021 compared to Sh9.074 billion in the same period last year.

Net earned premiums grew by 0.3 per cent to Sh8.689 billion from Sh 8.660 billion last June.

Kenya Re's asset base however during the period grew 2 per cent increased from Sh53.24 billion as at the end of 2020 to Sh54.24 billion as at in the first half of 2021.

An analysis of various insurer's half year results shows that the continued increase of claims resulted in either profit drop or increased operating expenses.

Sanlam Kenya posted a dip in earnings posting a Sh291.8 million loss in the first half of the year, up from a Sh99.1 million loss posted in the same period last year.

The firm attributed the loss to provisioning on settling high claims and the one-off forex losses.

Sanlam’s net claims and policyholder benefits rose by almost two fold to Sh4.1 billion from Sh2.5 billion last year.

However,  Jubilee, CIC Insurance, Britam and UAP Group recorded an increase in net profit despite high claims.

Jubilee Holdings announced a profit of Sh4.5 billion in its half-year net earnings compared to Sh1.8 billion posted in a similar period last year.

The group said that the improvement in the performance was greatly influenced by gains from the sale of a majority stake in its former subsidiary, Jubilee General Insurance Limited to Germany's Allianz.

CIC Insurance reported a Sh260 million net profit for the half-year period from a net loss of Sh335.5 million reported in the same period last year.

The firm's return to profitability was helped by improved performance in its underwriting business and higher investment income.

CIC's claims however increased seven percent to Sh5.8 billion, partly due to a rise in benefit payouts in the life insurance business as a result of the pandemic.

As for Britam Holdings, it posted a Sh376.3 million net profit in the first half of 2021, marking a recovery from Sh1.63 billion net loss posted in a similar period last year.

The insurer's earnings were however impacted by a Sh3.78 billion or 25 percent rise in operating expenses, driven by increased claims payments, interest payments, and restructuring costs.

UAP Old Mutual Group recovered from a loss of Sh305 million in its half year 2020 to post a net profit of Sh252 million in the first six months of 2021.

Net claims payable however increased 48 per cent to Sh7.2billion from Sh4.854billion driven partly by increased medical claims relating to Covid-19 cases and hardening of reinsurance terms in 2021 that has led to reduced reinsurance recoveries.

The analysis reveals that despite the insurers posting profit increases or drops, claims still remained high

According to IRA's report, reported general liability claims went up by 9.8 per cent to 14,766 compared to 13,443 reported in January to March 2021 while general non - liability claims went up by 19.4 percent to 2,000, 281 from 1,674,507 reported in the previous quarter.

In the quarter under review, the claims payment ratio for general liability claims increased to 9.3 per cent compared to 9.2 per cent in the first quarter.

The claims payment ratio for general non-liability claims increased to 65.8 per cent in Q2 2021 from 64.7 per cent reported in Q1 2021, while the claims payment ratio for the long-term insurance business increased to 73.9 per cent compared to 73.7 per cent observed in the previous quarter.