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Insurers cut stocks investment to 2.8pc of total assets – Business Daily

Nairobi Securities Exchange (NSE) on the trading floor. FILE PHOTO | NMG
Insurance firms have cut their holdings of listed shares to a new low of 2.8 percent of their portfolio, following sustained sales of the underperforming assets whose valuation has been eroded by a prolonged bear run at the stock exchange.
Latest data from the Insurance Regulatory Authority (IRA) shows that the sector held Sh25.26 billion worth of quoted equities as at June this year, representing a decline of 23.8 percent from a year earlier when the assets were valued at Sh33.16 billion.
The industry had a total of Sh893.8 billion in assets at the end of June, out of which Sh766.44 billion (85.8 percent) were in the form of income-generating investments, which include government securities.
Over a period of three years —from June 2019— the value of the equities investments has fallen by 34.9 percent, with the underwriters instead redirecting their investment portfolio towards government securities, investment property, and term deposits, which have offered more stable returns.
Government securities investments, which in June were valued at Sh553.7 billion, now account for 72 percent of income-generating assets or 62 percent of the industry’s total portfolio. “The industry exposure to capital market investment (quoted shares) continued to drop from 5.8 percent in quarter two of 2019 to 2.8 percent in the second quarter of 2022 with long-term having the highest exposure of 2.2 percent,” said the IRA in its industry report.
Since mid-2019, the Nairobi Securities Exchange (NSE) has been hit by successive shocks including the Covid-19 scourge, and ongoing Russia-Ukraine conflict, in the process shedding billions in investor wealth.
The NSE 20 Share Index, which tracks performance of blue chip stocks at the bourse, has shed 36 percent of its value in the period, while the all-encompassing NSE All Share Index has dropped by 14.7 percent.
For insurers, a drop in the fair value of shares at the market hurts investment income, which has increasingly become critical for the sector that suffers from low uptake of products.
A number have, therefore, responded to the bear run at the market by cutting their exposure to equities, in order to protect their profitability.
Britam Holdings, which has traditionally held one of the larger exposures to the stock market through investments in the banking sector, has been taking steps to unwind its position in 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 Sh13.9 billion.
Britam made the sale partly due to a need to diversify its portfolio and also to comply with regulatory guidelines that cap investment in a bank at 10 percent of an insurer’s total assets.
The company has also signalled its intention to offload part of the 48.2 percent stake it holds in listed mortgage financier HF.
Britam invested more than Sh5 billion to acquire the HF stake through several transactions, including the buyout of Equity Group’s 24.7 percent ownership in the mortgage lender in 2014 for Sh2.8 billion.
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Joseph Muongi

Financial.co.ke was founded by Mr. Joseph Muongi Kamau. He holds a Master of Science in Finance, Bachelors of Science in Actuarial Science and a Certificate of proficiencty in insurance. He's also the lead financial consultant.