Cytonn Investments Management Plc has today released the Half Year 2017 Insurance Report, which ranked Kenya-Reinsurance Ltd as the most attractive insurance company as measured by both the franchise value and intrinsic value scores. The franchise score measures the broad and comprehensive business strength of the company and the intrinsic score measures the investment return potential.
The report themed “Sustaining Profitability in an Era of Heightened Regulation” analyzed the results of listed insurance companies in the first half of 2017. Speaking during the report release, Cytonn’s Investments Analyst, Caleb Mugendi, said that the analysis aims to give a view on which listed insurance firms are the most attractive for investment by evaluating which companies are the most stable, and have the best future growth potential. “Technology and innovation is one of the key factors that are shaping the performance of the sector and thus we expect improved product innovation and operational efficiency to drive the growth of the sector amidst the heightened regulation. The growth of the middle class, adoption of alternative distribution channels and regional expansion are also key contributors to the growth of the sector,” said Caleb.
Liberty Kenya Holdings was the most improved company, rising to 3rd position from 5th position in FY’2016, driven by a better return on average tangible common equity, improved levels of diversification as measured by investment income to total income ratio, and high potential return on intrinsic valuation. Sanlam retained 6th position mainly as a result of low return on tangible common equity, high loss ratio, low underwriting leverage, and a high reserve leverage. Britam Holdings dropped 2 positions to Position 4 from Position 2 in our FY’2016 Insurance Sector Report, due to a low intrinsic valuation, and a low return on tangible common equity of 10.8%, versus an industry average of 11.5%, which affected its Franchise Value Ranking. Sanlam Kenya ranked lowest, in both the franchise and intrinsic value score.
Kenya’s listed insurance companies recorded a 5.6% decline in core EPS growth, compared to a growth of 69.4% in H1’2016. On key operating metrics, the loss ratio across the sector rose to 72.7% from 66.5% in H1’2016, despite introduction of tough measures by market players to reduce fraudulent claims, while the expense ratio dropped marginally to 54.3% from 55.5% in H1’2016, owing to a decrease in operating expenses amidst a robust growth in net premiums earned. On average, the insurance sector has delivered a Return on Average Equity of 10.9% a marginal improvement from 9.0% in H1’2016.
“Following the adoption of a risk based framework for capital adequacy assessment, the sector is set to experience an increase in mergers and acquisitions, and the move is also likely to lead to capital raising initiatives by some players in the sector to shore up capital. For example, last month, Britam Holdings announced a deal to raise Kshs 5.7 bn from Africinvest III, a special purpose vehicle (SPV) managed by Africinvest Capital Partners Management II. The solvency margins on the listed insurance space have declined from a high of 30.1% in 2014, to 28.7% in H1’2016, and to 27.8% in H1’2017, indicating that assets have been growing faster than shareholder’s funds. Premiums continue to record strong growth with growth in Life business premiums outpacing General business in H1’2017 at 26.1% and 6.3%, respectively. Despite the sector remaining attractive with vast potential, we have witnessed the insurance sector grappling with low penetration, with Kenya’s penetration standing at 2.8% compared to South Africa’s 14.1%,” said Dennis Kariuki, Assistant Investment Analyst.
Table: Cytonn H1’2017 Insurance Report Rankings
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CYTONN’S H1’2017 INSURANCE REPORT RANKINGS |
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|
Company |
Franchise Value Total Score |
Total Return Score |
Composite FY'2016 Score |
H1'17 Rank |
FY'16 Rank |
|
Kenya Re |
28 |
2 |
12 |
1 |
1 |
|
Jubilee Holdings |
30 |
3 |
14 |
2 |
3 |
|
Liberty Holdings |
34 |
1 |
14 |
3 |
5 |
|
Britam Holdings |
35 |
5 |
17 |
4 |
2 |
|
CIC Group |
39 |
4 |
18 |
5 |
4 |
|
Sanlam Kenya |
44 |
6 |
21 |
6 |
6 |
