NAIROBI, KENYA, SEPTEMBER 19, 2016 –CIC Insurance Group improved significantly to emerge as the most attractive insurance company in Kenya in the first half on 2016. CIC Insurance Group tied alongside Kenya Re, which has maintained the same top position in 2015. The firms topped the “H1 2016 Cytonn Insurance Report” from both a potential return and financial health perspective.
CIC Insurance Group made a huge leap to position one having ranked fourth in the Full Year 2015 report; the leap was due to an improvement in both the expense and the combined ratios as they adopted advanced technology especially in their medical business. Jubilee Holdings dropped one position from its last ranking in 2015 to 3rd position out of the six listed insurance firms in Kenya. Sanlam, which until the recent rebranding was trading as Pan Africa Insurance Holding, retained its position at the bottom in both the total return score category and franchise score category.
“The analysis is brought about by a need to take a view, on behalf of our investors, on which listed insurance companies have the most return potential by looking at both the franchise value and future growth potential,” said Elizabeth Nkukuu, Cytonn’s Chief Investment Officer. “With Kenya’s insurance penetration at 3% compared to Africa’s average of 3.5%, there is still a lot of room for growth and the sector has adopted alternative channels of distribution. To further enhance the quality of returns in the sector, there is a lot of diversification of investments especially into real estate where the returns remain high and stable. With the expected increase in regulations we expect a lot of product innovation and the consolidation is expected to continue,” added Elizabeth.
The report, released twice every year, covers the health and future expected value of the listed insurance companies by highlighting their performance using profitability, efficiency, diversification, risk appetite and solvency metrics’. Analysis is conducted on each listed insurance counter to determine their financial health, which is combined with target price recommendations for each company, to give a composite score that determines the ranking. The rankings are based on a weighting of 40% franchise value- the franchise score measures the broad and comprehensive business strength of the company, and 60% weighting of the intrinsic score which measures the upside potential return.
“The growth in the sector was negative in the first half with the PAT declining by 11.9% for listed companies due to a high combined ratio of 127.3% for these companies,” said Maurice Oduor, Cytonn’s Investment Manager. “While the sector is struggling, we are of the view that insurance companies have a lot they can do in order to register considerable growth and improve penetration in the country. Foremost, we expect more synergy between banks and insurance companies to introduce bancassurance as well as the integration of mobile money payments to allow for policy payments through this increasingly preferred transaction medium,” added Maurice.
Despite the insurance sector having too many players, with 51 insurance firms serving 47 million people, the sector seems to record a low penetration of 3%. Insurance, as a product, is yet to be viewed as a necessity in Kenya compared to financial services such as banking. With increased competition and as insurance firms become more innovative with their products and distribution channels, the insurance industry is set to grow in the future.
The report is available online: Cytonn H1'2016 Insurance Sector Report
Table: Cytonn H1 2016 Insurance Sector Report Ranking
CYTONN’S H1’2016 INSURANCE REPORT RANKINGS | |||||
Company | Franchise Value Total Score | Total Return Score | Composite H1'16 Score | H1'16 Rank | FY'15 Rank |
Kenya Re Insurance | 30 | 1 | 13 | 1 | 1 |
CIC Insurance | 27 | 3 | 13 | 1 | 4 |
Jubilee Holdings | 34 | 4 | 16 | 3 | 2 |
Britam Holdings | 37 | 2 | 16 | 3 | 5 |
Liberty Kenya Holdings | 38 | 5 | 18 | 5 | 3 |
Sanlam Kenya | 42 | 6 | 20 | 6 | 6 |
