Economic Update

Published 03 Aug 2016

An expanding middle class, anchored by a young population, is set to support growth in Kenya’s insurance sector, although a regulatory overhaul is likely to increase consolidation pressure in the near term.

Growth forecast

Prospects for stronger revenue and deeper penetration for insurers in the Kenyan market are positive, according to a 2016 report released by UK-headquartered services firm EY.

According to its survey of sub-Saharan markets, EY forecasts that Kenya’s insurance sector could expand by a 6% compound annual growth rate in premiums through to 2018. Currently, Kenya’s insurance penetration rate stands at 2.9% of GDP.

Kenya’s life insurance segment, in particular, represents a significant growth opportunity.

With an expanding middle class – 44.9% of the population is now ranked in the middle-income bracket, defined as those spending between $2 and $20 a day, according to the African Development Bank, for a total of nearly 20m people – and rising life expectancy, demand for personal coverage is set to rise.

Along with rising household prosperity, Kenya’s relatively young median age – roughly 70% of the population are under the age of 35 ­– will support growth in the life insurance segment, according to Ezekiel Macharia Mburu, chief actuary at Kenbright Actuarial and Financial Services.

According to Mburu, younger Kenyans are likely to become more aware of the benefits of personal insurance, with a shift in culture awareness of life insurance products, especially as this cohort is more risk-oriented. There is strong potential in the life segment, which currently lags behind other product lines, he noted.

“The life insurance segment in Kenya is small, which is out of line with global trends, which suggests that it will grow,” Mburu told OBG.

Non-life still dominates

Though the life segment is seen as having the strongest growth potential in the market, as in many African economies, the industry is currently dominated by the non-life component.

According to data issued by Kenya’s Insurance Regulatory Authority (IRA) in June, the life segment only accounted for 31.4% of total written premiums valued at KSh55.27bn ($545m) during the first quarter of this year, with non-life representing the remainder.

The non-life segment dominates Kenya’s reinsurance sector to even a greater extent, with general business accounting for 81.2% of gross premium income of KSh3.22bn ($31.8m) for reinsurers in the first three months of this year.

The industry saw a slowing of growth, with the value of written premiums expanding by 9.6% during the first quarter of this year, compared to 16.4% y-o-y registered in the first quarter of last year. However, the level of growth was well above the 5.9% of the broader economy.

The industry’s total asset base at the close of the first quarter was KSh498.5bn ($4.8bn), up 10.1% y-o-y, with 80% of these funds lodged in income generation investments, of which 52.6% were government securities.

Regulatory consolidation

Kenya is also in the final stages of a regulatory overhaul, including establishing a Financial Services Authority (FSA) to consolidate the fragmented insurance landscape.

The FSA will merge four regulators – the IRA, the Retirement Benefits Authority, the Capital Markets Authority and the Sacco Societies Regulatory Authority – under one umbrella to provide a more organised approach to the sector.

“The move to a single regulator should bring Kenya in line with global best practices in financial regulation, and help to better coordinate regulatory policy,” Stephen Wandera, principle executive director at Britam, told OBG.

Amendments to Kenya’s Insurance Act last year also require insurers to double their capital by 2018 ­– short-term insurers will be required to increase their capital from KSh300m ($3m) to KSh600m ($6m) while long-term insurers must increase from KSh150m ($1.5m) to KSh400m ($4m).

However, many Kenyan insurers missed a June deadline to start building their capital, Tom Gichohi, executive director at the Association of Kenya Insurers, told local media earlier this month.

The association is currently lobbying the IRA to lower capital charges – requirements that mandate insurers place 40% of the value of their property investments and 30% of stock holdings with the IRA, according to press reports. 

“If you have heavily invested in property, for example, land and buildings, these are not things you can sell off tomorrow,” Gichohi said in an interview. “We are telling them that ‘some of these capital charges you have proposed are punitive.’”

Meanwhile, Kenya’s insurers’ stocks have dipped while the market may also see a number of stake sales and exits as a result of companies’ ability to comply with the new requirements.

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