Insurers cut equity investments to 2.8% of total assets

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Capital markets

Insurers cut equity investments to 2.8% of total assets


Nairobi Securities Exchange (NSE) on the trading floor. FILE PHOTO | NMG

Insurance companies reduced their holdings of listed shares to a new low of 2.8% in their portfolio, following sustained sales of underperforming assets whose valuations have been eroded by a prolonged decline in the stock market. .

The latest data from the Insurance Regulatory Authority (IRA) shows the sector held 25.26 billion shillings of listed shares in June this year, down 23.8% from the previous year, when the assets were valued at 33.16 billion shillings.

The industry had a total of 893.8 billion shillings in assets at the end of June, of which 766.44 billion shillings (85.8%) were in the form of income-generating investments, which include state securities.

Over a three-year period – from June 2019 – the value of equity investments fell 34.9% as policyholders shifted their investment portfolios towards government securities, investment properties and deposits instead. futures, which offered more stable returns.

Investments in government securities, which in June were valued at 553.7 billion shillings, now represent 72% of income-earning assets or 62% of the industry’s total portfolio. “The sector’s exposure to capital market investments (listed equities) continued to fall from 5.8% in the second quarter of 2019 to 2.8% in the second quarter of 2022, with the long term having the highest exposure of 2.2%,” the IRA said in its report. industry report.

Since mid-2019, the Nairobi Stock Exchange (NSE) has been hit by successive shocks, including the scourge of Covid-19, and the ongoing Russian-Ukrainian conflict, causing investors to lose billions of dollars.

The NSE 20 Share Index, which tracks the performance of blue chip stocks on the stock exchange, lost 36% of its value during the period, while the NSE All Share Global Index fell 14.7%.

For insurers, a decline in the fair market value of equities hurts investment income, which is increasingly critical for the industry which is suffering from low product uptake.

A certain number therefore reacted to the downward trend in the market by reducing their exposure to equities, in order to protect their profitability.

Britam Holdings, which has traditionally had one of the biggest exposures to the stock market through investments in the banking sector, has taken steps to unwind its position over the past year.

In April, the underwriter sold 253.1 million shares of Equity Group Holdings to the International Finance Corporation (IFC), for a reported consideration of 13.9 billion shillings.

Britam made the sale partly out of a need to diversify its portfolio and also to comply with regulatory guidelines which cap investment in a bank at 10% of an insurer’s total assets.

The company has also signaled its intention to shed part of the 48.2% stake it holds in the HF-listed mortgage financier.

Britam invested more than 5 billion shillings to acquire HF’s stake through several transactions, including buying out Equity Group’s 24.7% stake in the mortgage lender in 2014 for 2.8 billion shillings .

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