This archive report was first published on 19 November 2019.
As the insurance sector in Kenya prepares to transition to a risk-based capital adequacy framework, a new report by Cytonn has predicted a surge in mergers and acquisitions in the industry. The Cytonn H1'2019 Insurance Report on listed insurers notes that the move to the new framework could lead to capital raising initiatives by some players.
The report, released on November 19, 2019, highlights that solvency margins on listed insurers fell to 26.9 per cent during the period under review, compared to 27.9 per cent the same period last year.
According to the report, the new capital adequacy assessment framework has made it difficult for smaller insurers to continue with operations without increasing their capital or merging. This has led to an aggressive drive by firms to protect their market share, resulting in a 'mergers boom'.
Some key deals in the sector include the acquisition of a 13.8 per cent stake in Britam by Swiss Re, valued at Sh425 million, and Barclays Africa Group's Sh2.9 billion acquisition of Kenya First Assurance.
Shiv Arora, Cytonn's Head of Private Equity, noted that fraud remains one of the biggest challenges to the sector, with 25 per cent of insurance industry income being fraudulently claimed.
Association of Kenya Professional Insurance Agents official Clifford Ochieng also weighed in, saying that most underwriters are struggling and that mergers are the way forward.
According to the report, Jubilee is the most attractive insurer in terms of potential return and financial health, followed by Sanlam, Liberty Holdings, and Britam.
