Kenya's general insurance industry recorded a 35 per cent increase in net profit to Sh13.33 billion for the financial year ending December 2023, according to data from the Insurance Regulatory Authority (IRA).
This positive performance, however, masks an underlying challenge – a widening gap in the core business of underwriting.
The growth in profits can be attributed to a significant rise (17.4 per cent) in investment income, which reached Sh69.7 billion.
This increase helped offset the negative impact of wider underwriting losses.
Notably, underwriting losses grew by 33 per cent to Sh4.96 billion compared to the previous year, primarily due to a surge in claims for commercial vehicles and medical bills.
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"The review period saw investment income rise by 17.4 per cent to Sh69.7 billion from Sh59.3 billion.
The Sh10.4 billion rise in investment income helped grow the net earnings for the general insurers, despite underwriting losses having widened," the IRA report stated.
This trend of rising investment income reflects a strategic shift by insurers.
They have opted for a more conservative investment approach, reducing their exposure to equities and increasing their holdings in government securities.
These government securities now make up a substantial portion (59 per cent) of the Sh164 billion general insurance investment portfolio.
The underwriting losses were particularly pronounced in the motor and medical insurance segments.
Losses from underwriting private motor insurance decreased by 35 per cent to Sh2.6 billion, while commercial vehicle insurance losses declined by a smaller margin (6.5 per cent) to Sh3.3 billion.
However, medical insurance losses surged by a significant 2.5 times to Sh1.8 billion, contributing heavily to the overall underwriting losses.
"Underwriting losses—the difference between premiums collected and claims plus expenses paid—were highest in motor and medical business for the general insurers," the report highlighted.
This deterioration in underwriting performance coincides with a 12.3 per cent increase in claims paid by general insurers, reaching Sh81.2 billion compared to Sh72.3 billion in the previous year.
The rise in medical claims (Sh5.6 billion) accounted for a significant portion of this increase.
While gross premiums collected also grew (13.3 per cent to Sh191.3 billion), the growth rate was slower than the increase in claims paid out.
Additionally, direct expenses, including commissions, salaries, and legal fees, rose to Sh45.7 billion from Sh40.4 billion, further squeezing underwriting margins.
The report also shed light on the industry's market share distribution. APA Insurance emerged as the leader with a 9 per cent share, followed closely by Old Mutual (8.7 per cent).
CIC General, Britam General, and GA Insurance rounded out the top five, holding market shares of 8.4 per cent, 8.2 per cent, and 8.1 per cent, respectively.
