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Cytonn Investments is an alternative investment manager with presence in East Africa, Finland and the US. Cytonn Investments provides investors with exposure to the high growth East Africa region; their key investors include global and local institutional investors, individual high net-worth investors and the diaspora. 


In a report Cytonn Investments released in early May 2017, they ranked the Kenya Reinsurance Corporation as the leading listed company in Franchise value from a financial health and intrinsic value perspective. The report attributes Kenya Re’s sterling performance to a low combined ratio as well as high solvency ratio which is an indication of better capacity to generate profits from its core business.  A combined ratio is achieved after calculating the sum of incurred losses and expenses then dividing them by earned premium. The ratio is typically expressed as a percentage. A ratio below 100% indicates that the company is making underwriting profit while a ratio above 100% means that it is paying out more money in claims that it is receiving from premiums. 

In our case, Kenya Re attained a ratio below 100% which means that the Corporation is making an underwriting profit. Solvency ratio on the other hand, is a key metric used to measure an enterprise’s ability to meet its debt and other obligations. The solvency ratio indicates whether a company’s cash flow is sufficient to meet its short-term and long-term liabilities. The lower a company's solvency ratio, the greater the probability that it will default on its debt obligations and vice-versa. The recognition of Kenya Re’s high solvency ratio therefore means that the Corporation has great financial health to continue staying afloat through meeting all its debt obligations and paying off claims.  

The analysis covered the health and future expected performance of the financial institution, by highlighting their performance using metrics to measure Profitability, efficiency, diversification, risk appetite and solvency. The report stated that the ranking was based on a weighted average ranking of Franchise value* (40%) and Intrinsic value* (60%). The report is based on the industry’s financial performance for 2016.

The report shows that CIC Group dropped from top position in 2015 to rank fourth. Cytonn attributed this to poor return on average tangible equity, low levels of diversification and lower ability to absorb sudden large shocks owing to a high ratio of claims to shareholder’s funds.

Sanlam Kenya ranked last as a result of poor return on tangible equity, low solvency ratio, low underwriting leverage and high claims to shareholder’s funds.

On potential total return, Liberty Holdings and Britam Holdings held the first and second positions with total potential returns of 21.3 per cent and 20.8 per cent, respectively. Sanlam Kenya registered the lowest total potential return, with a potential downside of 14.9 per cent.

Cytonn Investments added in the report, that the franchise score measured the broad and comprehensive business strength of the company and the intrinsic score measured the total return potential. Cytonn Investments further added that the analysis of the report was brought about by a need to be able to offer investors, especially the global investor, a future growth opportunity perspective.

In the backdrop of a stable and growing economy in Kenya, the insurance sector in Kenya is said to have realized significant growth over the years to become an integral part and player in the financial services sector in Kenya contributing to 6.2 percent to Kenya’s GDP from a 3.5 percent contribution 10-years ago.  Some of the factors that the Kenyan insurance sector has benefited from included convenience and efficiency through insurance firms adopting alternative channels for both products distribution and premium collection such as Bancassurance and improved agency networks, advancement in technology and innovation making it possible to make premium payments through mobile phones.

The insurance business in Kenya is profitable, but it is not necessarily easy. Kenya represents one of Africa’s most well-developed and best-regulated insurance markets, with formidable historic growth and even better near-term prospects, but it is fragmented and competition is tough. There are increasing regulatory capital requirements on the horizon, and there is growing scope for consolidation.

Foreign and local capital is likely to continue to flow into the sector, lured not only by the great domestic potential – access to financial services is still modest – but also by the chance to expand into the sizeable regional market. Currently, according to the Association of Kenyan Insurers (AKI), Kenya represents 70% of the East African insurance market, which also includes Tanzania, Uganda, Rwanda and Burundi.

In recent years, insurance penetration and accessibility have been improving steadily in Kenya. The middle class is growing, more Kenyans have disposable income and there is potential for new demand for insurance. There is rapid urbanisation, giant infrastructure projects, new energy schemes and growing industry. Devolution is already spurring a burst of activity in previously marginalised areas, and underwriters and brokers will need to move away from overconcentration on traditional areas, such as Nairobi, Mombasa and Kisumu.

A number of major infrastructure plans have created investment opportunities in insurance. Some of the main ventures include the construction of the 2nd runway and new terminal at Jomo Kenyatta International Airport, the Lamu Transport Corridor project and the- now completed Standard Gauge Railway (SGR) project.

Indeed Kenya Re’s outstanding recognition in the Cytonn Investments report goes a long way in showing the thriving team spirit amongst all staff in the Corporation in working together to meet set organizational goals and targets. Let this be a stepping stone for more recognition going forward. Onwards and upwards Kenya Re team! 


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