Rédaction Africa Links 24 with Daily Nation
Published on 2024-02-06 10:05:56
Insurance and reinsurance firms have significantly reduced their investment in stocks listed on the Nairobi Securities Exchange (NSE) to less than 2 per cent of their portfolio due to continued investor flight from the bourse. According to the Insurance Regulatory Authority, the sector’s investment in quoted equities dropped to Sh19.38 billion at the end of September 2023, marking a 27 per cent decline from Sh26.53 billion in the preceding similar period.
This decline has led to the industry’s exposure to capital market investment reaching a record low of 1.9 per cent of the Sh1.03 trillion assets, compared to 2.9 per cent in 2022 and 4.3 per cent in 2021. The continued sell-off from equities is a result of the underperformance of shares of many companies listed on the NSE, while returns from government securities have been trending upwards.
As a result, underwriters have increased their investment in government securities, including bonds and bills. Long-term insurers’ stake in government securities grew by 10.3 per cent to Sh503.6 billion, accounting for 76.8 per cent of their business investments. General insurers’ investment in government securities also increased by 8.2 per cent to Sh96.15 billion, representing 59.2 per cent of their total investments. In comparison, government securities accounted for 45 per cent of the insurance industry’s investments in 2014, while quoted equities made up 20 per cent.
Over the past three years, the value of equities investments has fallen by over 45.5 per cent, prompting underwriters to redirect their investments towards government securities, property, and term deposits, which offer more stable returns. According to Central Bank of Kenya data, insurance companies accounted for 7.36 per cent or Sh371.4 billion of Kenya’s Sh5.045 trillion domestic debt by the end of January 26.
The NSE recorded a 27.5 per cent drop in paper wealth amounting to Sh547 billion last year as the multi-year bear run in the market continued. This decline has had a negative impact on investment income, which has become increasingly critical for insurers, especially given the losses in major insurance classes such as medical and motor. Consequently, many insurers have responded to the bear run in the market by reducing their exposure to equities to protect their profitability.
The persistent decline in investment in NSE stocks by insurance and reinsurance firms reflects a broader trend of investor flight from the bourse, which has seen a shift towards more stable and secure investment options such as government securities. As the market continues to face challenges, it remains to be seen how insurers and investors will navigate these changes and adapt their investment strategies to ensure long-term sustainability and growth.
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