NAIROBI, KENYA, NOVEMBER 16TH 2021
Cytonn Investments has today released its H1’2021 Insurance Sector Report, which ranks Jubilee Holdings as the most attractive insurance company in Kenya, supported by a strong franchise value and intrinsic value score. The franchise score measures the broad and comprehensive business strength of Insurance companies across 8 different metrics, while the intrinsic score measures the investment return potential.
The report themed “Improved Earnings in a Higher Loss Ratio Environment” analysed the H1’2021 results of the listed Insurance Companies excluding Kenya Re. “The Net Premiums grew by a weighted average of 6.3% in H1’2021 which was faster than the 5.1% growth in H1’2020 mainly attributable to the continued economic recovery from the economic shocks occasioned by the COVID-19 pandemic. Loss and Expense Ratios deteriorated and consequently, the weighted average Combined Ratio also worsened to 146.6% in H1’2021, from 123.8% in H1’2020. Insurance uptake in Kenya remains low with the insurance penetration coming in at 2.3% as at December 2020, attributable to the fact that insurance is still seen as a luxury and is mostly taken when it is necessary or a regulatory requirement. We expect a steady growth in premiums as underwriters come up with products suited to the planning for unforeseen events like COVID-19, mainly in the medical and life businesses. Claims are also expected to grow aggressively with full resumption of economic activities, particularly due to an expected increase in motor claims as travel restrictions ease and medical claims which have been on a constant increase.” said Ann Wacera, Senior Investments Analyst at Cytonn Investments.
“We expect insurers to look into portfolio optimization to re-evaluate their products and services in order to remain profitable. This will enable insurers to focus on their core and profitable offerings and disposing non-core offerings. This could manifest through sale of business units considered unprofitable. We expect this portfolio optimization to extend into offloading or reducing stake in non-profitable subsidiaries and associates. Products are also set to be affected as the underwriters extend focus to profitable products.” said Kevin Karobia, Investments Analyst at Cytonn Investments.
Jubilee Holdings improved to position 1 in H1’2021 from position 2 in FY’2020 mainly due to the improvement in the franchise score, with the expense ratio declining to 30.4% in H1’2021, from 56.3% in FY’2020. As a result, the combined ratio also declined to 140.0% in H1’2021, from 157.6% in FY’2020. Sanlam improved to position 2 from position 3 in FY’2020 mainly due to an improvement in its expense ratio to 47.1% in H1’2021, from 54.2% in FY’2020. Liberty declined to position 3 in H1’2021 from position 1 in FY’2020 mainly due to declines in both the franchise and intrinsic value scores. Britam Holdings improved to position 4 in H1’2021 from position 5 in FY’2020 mainly due to the improvement in the franchise score in H1’2021, driven by reduction in loss ratio to 78.5% in H1’2021, from 85.7% in FY’2020. CIC Group declined to position 5 in H1’2021, from position 4 in FY’2020, on the back of a weaker franchise score driven by deterioration of its combined ratio to 132.1% in H1’2021, from 121.5% in FY’2020.
Table 1: Listed Insurances Franchise and Intrinsic Ranking
The table below ranks Insurances based on franchise and intrinsic ranking which compares metrics for efficiency, growth, and profitability, among other metrics:
|
Listed Insurance Companies H1'2021 Comprehensive Ranking |
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|
Insurance Company |
Franchise Value Score |
Intrinsic Value Score |
Weighted Score |
H1'2021 Ranking |
FY'2020 Ranking |
|
Jubilee Holdings |
13 |
1 |
5.8 |
1 |
2 |
|
Sanlam Kenya |
22 |
2 |
10.0 |
2 |
3 |
|
Liberty Holdings |
23 |
3 |
11.0 |
3 |
1 |
|
Britam |
24 |
4 |
12.0 |
4 |
5 |
|
CIC Group |
23 |
5 |
12.2 |
5 |
4 |
*Market Cap Weighted as at 11th November 2021
Table 2: Cytonn’s H1’2021 Listed Insurance Companies Earnings and Growth Metrics
|
Listed Insurance Companies H1'2021 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 |
|
CIC Group |
177.3% |
0.5% |
7.0% |
81.3% |
50.8% |
132.1% |
3.4% |
0.6% |
|
Jubilee Holdings |
146.2% |
10.0% |
42.1% |
109.6% |
30.4% |
140.0% |
12.5% |
3.1% |
|
Britam Holdings |
123.0% |
2.4% |
15.8% |
78.5% |
79.4% |
157.8% |
1.7% |
0.3% |
|
Sanlam Kenya |
68.8% |
45.9% |
64.9% |
92.8% |
47.1% |
140.0% |
(19.3%) |
(0.9%) |
|
Liberty Holdings |
(20.4%) |
(5.7%) |
32.5% |
75.0% |
84.3% |
159.3% |
3.1% |
0.7% |
|
*H1'2021 Weighted Average |
127.6% |
6.3% |
29.1% |
92.8% |
53.8% |
146.6% |
6.2% |
1.6% |
|
**H1'2020 Weighted Average |
(280.5%) |
5.1% |
6.5% |
75.0% |
48.8% |
123.8% |
2.0% |
0.6% |
|
*Market cap weighted as at 11/11/2021 |
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**Market cap weighted as at 30/09/2020 |
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Key takeaways from the table above include:
- Core EPS growth recorded a weighted growth of 127.6%, compared to a weighted decline of 280.5% in H1’2020. The increase in earnings was attributable to increased premiums during the period following robust recovery by the sector from the COVID-19 pandemic, coupled with gains recorded in the equities markets and higher yields from government papers,
- The premiums grew at a faster pace of 6.3% in H1’2021, compared to a growth of 5.1% in H1’2020, while claims grew at an aggressive faster rate of 29.1% in H1’2021, from the 6.5% recorded in H1’2020 on a weighted average basis,
- The loss ratio across the sector increased to 92.8% in H1’2021, from 75.0% in H1’2020, owing to increased claims in insurance sub sectors such as motor and medical and perennial challenges facing the industry such as fictitious claims and increased benefit payments from the life business owing to job layoffs,
- The expense ratio increased to 53.8% in H1’2021, from 48.8% in H1’2020, owing to an increase in operating expenses,
- The insurance core business still remains unprofitable, with a combined ratio of 146.6% as at H1’2021, compared to 123.8% in H1’2020, and,
- On average, the insurance sector delivered a Return on Average Equity (ROaE) of 6.2%, an increase from a weighted Return on Average Equity of 2.0% in H1’2020.
Source: Cytonn Research
