Cytonn Investments Management Limited has today released the H1’2019 Insurance Report, which ranks Jubilee Insurance as the most attractive insurance company from both a potential return and financial health perspective.
The report is themed “Regulation and Consolidation to Drive Attractiveness”, and analyzed the H1’2019 results of the listed insurers “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 (i) convenience and efficiency through adoption of alternative channels for both distribution and premium collection such as Bancassurance and improved agency networks, (ii) advancement in technology and innovation making it possible to make premium payments through mobile phones, and (iii) a growing middle class, which has led to increased disposable income, thereby increasing demand for insurance products and services. These factors have been key in driving growth of the sector. 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,” added David
The report is available online (insert link here).
See key tables below.
Table 1: Cytonn’s H1’2019 Listed Insurers Earnings and Growth Metrics
|
Listed Insurance Companies H1'2019 Earnings and Growth Metrics |
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|
Insurance Company |
Core EPS Growth |
Net Premium Growth |
Claims Growth |
Loss Ratio |
Expense Ratio |
Combined Ratio |
ROaA |
ROaE |
|
Britam Holdings |
50.0% |
(0.4%) |
(12.1%) |
59.3% |
70.5% |
129.8% |
(1.4%) |
(6.1%) |
|
Liberty Holdings |
45.8% |
3.4% |
(0.5%) |
80.3% |
71.7% |
152.0% |
1.7% |
8.3% |
|
Jubilee Holdings |
(1.6%) |
7.7% |
(8.5%) |
94.1% |
31.4% |
125.5% |
3.5% |
14.8% |
|
Kenya Re |
(12.5%) |
16.6% |
48.8% |
67.3% |
41.0% |
108.3% |
4.7% |
7.4% |
|
CIC Group |
(95.2%) |
0.4% |
7.9% |
70.9% |
49.9% |
120.8% |
(0.9%) |
(3.7%) |
|
Sanlam Kenya* |
N/A |
10.8% |
(18.8%) |
72.1% |
63.4% |
135.5% |
0.7% |
10.0% |
|
H1'2019 Weighted Average** |
3.2% |
5.7% |
0.0% |
77.2% |
49.1% |
126.3% |
1.6% |
5.7% |
|
H1'2018 Weighted Average** |
(0.6%) |
(8.2%) |
(1.8%) |
84.2% |
60.2% |
144.4% |
0.9% |
3.9% |
|
*Sanlam's EPS cannot be calculated since it registered losses in H1'2018 |
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**The weighted average is based on Market Cap as at 22nd October 2019 |
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Source: Cytonn Research
Takeaways from the table above include:
- The average core EPS growth increased by 3.8% points in H1’2019 to 3.2%, from (0.6%) in H1’2018,
- The premiums grew by 5.7% in H1’2019, compared to a decline of 8.2% in H1’2018, while claims remained flat on a weighted average basis
- The loss ratio across the sector decreased to 77.2% in H1’2019, from 84.2% in H1’2018, owing to introduction of tough measures by market players to reduce fraudulent claims,
- The expense ratio decreased to 49.1% in H1’2019, from 60.2% 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% as at H1’2019, compared to 144.4% in H’2018, and,
- On average, the insurance sector has delivered a Return on Average Equity of 5.7%, an increase from 3.9% in H1’2018.
Table 2: Cytonn’s Comprehensive Listed Insurance Company Rankings
- Based on the Cytonn H1’2019 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% and the latter a weight of 60%.
- Important to note is that Kenya Re was not considered in the above rankings given it is a re-insurance company, and not a listed insurance company that undertakes traditional life & general underwriting business.
|
Cytonn’s Comprehensive Listed Insurance Company Rankings |
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|
Insurance Company |
Franchise Value Total Score |
Intrinsic Value Total Score |
Weighted Score |
Rank |
|
Jubilee Holdings |
9 |
1 |
4.2 |
1 |
|
Sanlam Kenya |
13 |
2 |
6.4 |
2 |
|
Liberty Holdings |
17 |
3 |
8.6 |
3 |
|
Britam Holdings |
16 |
5 |
9.4 |
4 |
|
CIC Group |
20 |
4 |
10.4 |
5 |
Source: Cytonn Research
From the above table:
- Jubilee Holdings took the Top Position, ranking top in the franchise score category on the back of a strong combined ratio, indicating better capacity to generate profits from its core business. The only factor holding Jubilee back is its loss ratio, which is the highest among listed companies,
- Sanlam Kenya took 2nd Position, on the back of a strong franchise score, driven by the highest Return on Average Equity, and,
- Liberty & Britam Holdings came in 3rd and 4th 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 5th Position on the back of weak franchise rankings scores.
Source: Cytonn Research
