Cytonn FY'2020 Kenya Listed Insurance Sector Report
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Cytonn FY’2020 Kenya Listed Insurance Sector
Report
30th May, 2021Table of Contents
1 Overview of the Firm 4 Cytonn Insurance Sector Report
2 Economic Review and Outlook 5 Cytonn’s Insurance Sector Report
3 Kenya Insurance Sector Review 6 Appendix
www.cytonn.com 21. Introduction to Cytonn
3About Us
Cytonn Investments is an alternative investment manager, with real estate development capability, and a primary focus on private equity and real estate investments
in the high growth Kenyan Region. Cytonn has a unique strategy of coupling two compelling demand areas - the lack of high yielding investment products and the
lack of institutional grade real estate. We provide high yielding investment instruments to attract funding from investors, and we deploy that funding to largely pre-
sold investment grade real estate. With offices in Kenya and Washington, DC - USA, we are primarily focused on offering alternative investment solutions to global
and local institutional investors, individual high net-worth investors, and diaspora investors interested in the East-African region. Real estate investments are made
through our development affiliate, Cytonn Real Estate, where we currently have over Kshs. 82 billion (USD 820 mn) of projects under mandate across ten projects. In
private equity, we invest in banking, education, and hospitality.
Over Kshs. 82
82 3 500 10
Three offices across 2 Over 500 staff 10 investment
billion worth of continents members, including ready projects in
projects under
Cytonn Distribution real estate
mandate
A unique franchise differentiated by:
Independence & Investor
Focus Alternative Investments Strong Alignment Committed Partners
Focused on serving the Specialized focus on Every staff member is an Strong global and local
interest of clients, which is alternative assets - ownerin the firm. When partnerships in financing,
best done on an Real Estate, Private clients do well, the firm does land and Cytonn Real
independent platform to Equity, and Structured well; and when the firm does Estate, our development
minimize conflicts of interest Solutions well, staff do well affiliate
www.cytonn.com 4Why We Exist
Africa presents an attractive investment opportunity for investors seeking attractive and long-term returns. Despite the alternative markets in Africa having
high and stable returns, only a few institutional players serve the market. Cytonn is focused on delivering higher returns in the alternative markets, while
providing the best client service and always protecting our clients’ interests.
WE SERVE THREE MAIN CLIENT SEGMENTS: WE INVEST OUR CLIENT FUNDS IN:
● Real Estate, and Real Estate Related Businesses
● High Net-worth Individuals through Cytonn Private Wealth. This is done
through our captive Distribution Network ● Private Equity
● East Africans in the Diaspora through Cytonn Diaspora ● Fixed Income Structured Solutions
● Global and Local Institutional Clients. These clients are served from our ● Equities Structured Solutions
Investment & Fundraising Team
We invest them in We deliver the
We collect funds
high growth best possible
from our clients
opportunities returns
www.cytonn.com 5Our Business Structure
Cytonn Investments Management Plc
Cytonn Asset Managers
Cytonn Capital Partners Cytonn
(Regulated by Other Strategic Initiatives
(Private Markets) Real Estate
CMA & RBA)
Private Offers and Real Estate Cytonn Distribution
Unit Trust Funds Research and Deal Origination
Investments
Cytonn Hospitality East African Forum for
Cytonn Africa Financial Fund Project Management
Alternative Investments
Superior Homes Kenya Cytonn Advisory Quality Assurance/ Control
Pension Fund Management Cytonn Procurement - Cymatt
Cytonn Real Estate Legal
Cytonn Properties
Cytonn Centre for Affordable
Housing
www.cytonn.com 62. Kenya Economic Review and Outlook
7The economic growth expected to remain slow in 2021
Q3'2020 GDP Sectorial Contribution Kenya GDP Growth rate
Education 4.1%
8.0%
5.9% 6.3%
Information and Communication 4.2% 5.4% 5.7% 5.4%
6.0% 4.9% 4.9%
Construction 6.8%
4.0%
Financial & Insurance 6.8%
Transport and Storage 7.8% 2.0%
-1.1%
Wholesale and retail trade 8.6%
0.0%
Real estate 9.0%
2014 2015 2016 2017 2018 2019 Q1' 20 Q2' 20 Q3' 20
Manufacturing 9.4% -2.0%
Taxes on Products 11.4% -4.0%
Agriculture and Forestry 19.5%
-6.0%
0.0% 5.0% 10.0% 15.0% 20.0% 25.0% -5.7%
-8.0%
*Source: KNBS
• According to Kenya National Bureau of Statistics (KNBS), the Kenyan economy recorded a 1.1% contraction in Q3’2020, down from a
growth of 5.8% recorded in Q3’2019. This was the second consecutive contraction, following the 5.7% contraction recorded in Q2’2020
• We expect the growth rate to be slower in the coming quarters following the imposition of new restrictions owing to the spread of COVID-
19 coupled with the absence of tax incentives issued in 2020
8Inflation
Inflation averaged 5.8% in the first four months of 2021
5-Year Inflation Rates
14.0%
11.5%
12.0%
10.0%
6.6%
8.0% 6.3% 6.7% 6.3% 6.4%
6.0%
6.3%
4.0% 5.6% 6.4%
3.8% 5.8%
2.0% 3.7% 4.1%
0.0%
8
16
17
5
0
8
7
15
20
17
19
9
15
6
20
1
t-1
-1
l- 1
-1
r -1
r -2
-1
-2
n-
n-
p-
b-
n-
n-
c-
g-
ar
ov
ov
ay
Ju
Oc
Ap
Ap
De
Au
Ju
Ju
Ja
Ja
Se
Fe
M
M
N
N
1-
1-
1-
1-
1-
1-
1-
1-
1-
1-
1-
1-
1-
1-
1-
1-
*Source: KNBS
• Inflation averaged 5.8% in the first four months of 2021, a 2.0% points decline from the 6.0% recorded over the similar period in 2020. Key
to note, the April 2021 inflation declined to 5.8% after rising continuously in the first three months. The rise in inflation rate earlier in the
year was attributed to the rising fuel prices
• We expect inflation to be higher than 5.2%, which was the average in 2020, but remain within the government target range of 2.5% - 7.5%,
mainly due to the rising global fuel prices and the new taxes introduced at the start of the year that will be transmitted to the final
consumers
9Stanbic PMI Index
Kenya PMI Index
65
59.1
60
55 50.6
Average - 51.6
50
45 49.3
40
41.5
35
34.8
30
19
20
9
20
0
21
1
9
0
19
20
19
20
9
0
9
0
20
21
19
9
0
20
0
1
r-1
r-2
r-2
t-1
t-2
-1
-2
l- 1
l- 2
c-1
c-2
-2
-2
n-
n-
b-
b-
p-
p-
v-
v-
n-
n-
g-
g-
ar
ar
ay
ay
Ju
Ju
Oc
Oc
Ap
Ap
Ap
De
De
No
No
Fe
Fe
Au
Au
Se
Se
Ju
Ju
Ja
Ja
M
M
M
M
PMI Average
*Source: Markit Economics
• In the first four month of 2021, the economic prospects of the country improved, with the Stanbic PMI index averaging 49.1, an
improvement from the 42.8 recorded over a similar period in 2020. In April 2021, the PMI Index declined to 41.5 from the 50.6
recorded in March 2021
• Key to note, a PMI reading of above 50 indicates improvements in the business environment, while a reading below 50 indicates a
worsening outlook. Despite the stronger growth seen in the period under review, the level of sentiments was weak, as firms were
concerned that the economy could face a setback from the pandemic
10Currency
Year-to-date, the Kenyan shilling has appreciated by 1.5% against the US Dollar
115.0 115.0
Kshs. vs USD
108.5
110.0 110.0
105.0 10-yr moving average 108.2 105.0
100.0 100.0
95.0 95.0
90.0 90.0
May-16
May-17
May-18
May-19
May-20
May-21
Jan-17
Jan-18
Jan-19
Jan-20
Jan-21
Nov-16
Nov-17
Nov-18
Nov-19
Nov-20
Jul-16
Mar-17
Jul-17
Mar-18
Jul-18
Mar-19
Jul-19
Mar-20
Jul-20
Mar-21
Sep-16
Sep-17
Sep-18
Sep-19
Sep-20
Exchange Rate 10 Yr Moving Average
*Source: Central Bank of Kenya
• On a YTD basis, the Kenya shilling has appreciated by 1.5% in comparison to the 7.7% depreciation in 2020. The gain has mainly
been supported by the Improving diaspora remittances evidenced by a 43.8% y/y increase to USD 299.3 mn in April 2021, from
USD 208.2 mn recorded over the same period in 2020
• In our view, the shilling will come under pressure due to continued uncertainty globally making people prefer holding dollars and
other hard currencies
11Interest Rates and Monetary Policy
Central Bank Rate (%) Weighted Average Interest Rates (%)
20.0 14.0 12.1
18.0
12.0
16.0
14.0 7.0
10.0
12.0 7.1
10.0 8.0
8.0 6.0
6.0
4.0 4.0
2.0 5.0
2.0
0.0
31-Aug-11
31-Aug-12
31-Aug-13
31-Aug-14
31-Aug-15
31-Aug-16
31-Aug-17
31-Aug-18
31-Aug-19
31-Aug-20
29-Feb-12
28-Feb-13
28-Feb-14
28-Feb-15
29-Feb-16
28-Feb-17
28-Feb-18
28-Feb-19
29-Feb-20
28-Feb-21
31-May-11
31-May-12
31-May-13
31-May-14
31-May-15
31-May-16
31-May-17
31-May-18
31-May-19
31-May-20
30-Nov-11
30-Nov-12
30-Nov-13
30-Nov-14
30-Nov-15
30-Nov-16
30-Nov-17
30-Nov-18
30-Nov-19
30-Nov-20
0.0
Jan-19
Jan-20
Jan-21
Mar-19
Mar-20
Mar-21
Aug-19
Aug-20
Feb-19
Apr-19
Sep-19
Feb-20
Apr-20
Sep-20
Feb-21
Jun-19
Jun-20
May-19
May-20
Jul-19
Jul-20
Nov-19
Nov-20
Dec-19
Dec-20
Oct-19
Oct-20
Central Bank Rate Average Rate Deposit Interest Spread Lending
*Source: CBK
• Since the start of the year, the Monetary Policy Committee has met thrice and held the Central Bank Rate stable at 7.0% in all instances and the
Cash Reserve ratio also remained unchanged at 4.25%
• The MPC concluded that the current accommodative monetary policies together with the package of policy measures implemented over the last
year have protected the economy from substantial decline and supported vulnerable citizens. As a result of the adoption of the accommodative
policy in 2020, commercial banks’ lending rates declined to 11.9% in December 2020 from 12.0% seen in September 2020.
12Private Sector Credit growth
Private Sector Credit Growth
30.0%
25.8%
25.0%
20.0%
6.8%
15.0%
8.9%
10.0% Average: 8.0%
5.0% 2.8%
8.4%
1.9% 4.9%
0.0%
14
15
16
17
18
19
20
14
15
16
17
18
19
20
4
5
6
7
8
9
0
4
5
6
7
8
9
0
1
c-1
c-1
c-1
c-1
c-1
c-1
c-2
-1
-1
-1
-1
-1
-1
-2
-2
n-
n-
n-
n-
n-
n-
n-
p-
p-
p-
p-
p-
p-
p-
ar
ar
ar
ar
ar
ar
ar
ar
De
De
De
De
De
De
De
Se
Se
Se
Se
Se
Se
Se
Ju
Ju
Ju
Ju
Ju
Ju
Ju
M
M
M
M
M
M
M
M
*Source: KNBS
• In the 12 months to April 2021, growth in private sector credit stood at 6.8%, supported by recovery in demand with the improved economic
activity following the easing of COVID-19 containment measures, and the accommodative monetary policy
• We expect to see increased caution on lending especially to businesses that rely on imports hence inhibiting private credit sector growth due to
the high risk of credit default, with the possibility of heightened Non Performing Loans due to the continuing pandemic and the new restriction
measures put in place
133. Kenya Insurance Sector Overview
14Kenyan Insurance Sector Overview
The Insurance penetration in Kenya stands at 2.4% as at the end of 2019
• The industry is regulated by Insurance Regulatory Authority which is responsible for licensing, regulating and developing the insurance sector
• In the last five years, the life insurance market in Kenya has experienced growth in both the level of direct premiums as well as in the equity held by
the industry constituents
• In 2020, Kenya had 56 insurance companies, 5 reinsurance companies, 220 insurance brokers and 10,471 insurance agents (which includes 26
Bancassurance agents)
• Insurance penetration in Kenya stood at 2.4% of Gross Domestic Product (GDP) in 2019, unchanged from what was recorded in 2018, on the back of
price undercutting in an industry where players are facing increasingly tough competition
Insurance Penetration in Kenya
4.0%
3.4%
3.5% 3.1% 3.0% 2.9%
3.0%
2.4% 2.4%
2.5% 2.8%
2.7%
2.0%
1.5%
1.0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
15
Source: Central Bank of Kenya, FinAccess reportKenyan Insurance Sector Overview
General insurance business remains the largest contributor to industry insurance activity at 56.1%
Gross Direct Premium Income (Kshs Bn)
250
200
87.4 97.7 102.1
73.5 82.8
150 62.1
56.6
100 44.4
110.5 121.7 124.8 127.5 131.1 130.8
50 84.8 99.2
0
2013 2014 2015 2016 2017 2018 2019 2020
General Insurance Life Insurance
• Industry gross written premium stood at Kshs 232.9 bn as at end of Q4’2020, representing an increase of 4.4% from Kshs 228.8 bn in Q4’2019. Long term
insurance segment grew by 4.5%, while general Insurance declined marginally by 0.2%
• General insurance business remained the largest contributor to industry insurance activity contributing 56.1% of the total premium. Motor insurance and
medical insurance classes of business account for 67.4% of the gross premium income under the general insurance business
• In the long term insurance segment, pensions and life assurance classes were the biggest contributors to the life gross premium income, accounting for
72.5% in Q4’2020, compared to the 72.4% contribution by the two classes recorded in Q4’2019
16Insurance Sector Growth Drivers
Alternative channels for both premium distribution and claims verification and disbursement is driving the sector
The drivers of growth in the insurance sector in FY’2020 include;
a) Technology and Innovation: The industry players continue to innovate products while leveraging on technology to remain competitive. the onset of
the COVID-19 pandemic in FY’2020 saw the adoption of digital distribution of insurance products become a matter of necessity. Consequently, many
insurance companies increasingly took advantage of the available digital channels to drive growth and increase insurance penetration in the country. An
example is Liberty Holdings which has been using AI to rollout e-policy documents, self-services for retail customers and collect customer feedback
b) Adoption of Alternative Distribution Channels: Insurance companies have been dynamic and fast in adopting new alternative channels for both
distribution and premium collection with financial sector deepening leading to an improved method of distribution of insurance products, collection and
payment of premiums like bank assurance, online and mobile payment
c) Growth of the Middle Class: In a region with one of the fastest population and economic growth rates, the rise in disposable income is a great driver
for the sector. Demand for insurance products and services has grown, for instance, motor insurance, driven by the high rate of car importation into the
country recently
17Insurance Sector Growth Drivers
New regulations and the use of block chain have also contributed to growth in the insurance sector
d) Regulation: The newly introduced regulations in the insurance sector have helped most companies improve their capital management systems.
The new compliance requirements as stipulated in IFRS 17 come at a high implementation cost but they also assist companies manage their risks
and capital in a better way
e) Redirection in Core Operations- With the limited growth of the insurance industry, insurers are moving their focus to growing investment income
which involves and increase in the assets under management segments and investments in property. Most insurance companies are now moving into
asset management to boost their group revenues
18Recent Developments in the Kenyan Insurance Sector
The following are the most recent developments witnessed in the Insurance sector;
1. IFRS 17 Implementation: The standard, having replaced IFRS 4, is expected to give better information on profitability by providing more insights
about current and future profitability of insurance contracts. Separation of financial and insurance results in the income statement will allow for better
analysis of core performance for the entities and allow for better comparability of insurance companies. However, as a way to protect the insurance
industry from the negative effects of the pandemic the International Accounting Standards Board (IASB) deferred its implementation to be effective
from January 2023 or earlier
2. Increasing Price Wars: Insurers have seen a decline in group life business as well as ordinary business as a result of price wars that have been
prevalent among the players in the industry. Price wars have negatively impacted performance in the insurance sector. The price wars are as a result of
low penetration rate in the country which has led to players in the market undercutting product pricing in order to gain market share. The undercutting
continues to be a major challenge in the industry as well as increasing the risk that comes with product mispricing
19Recent Developments in the Kenyan Insurance Sector
The insurance sector has seen mergers and acquisitions mainly with companies trying to protect their market share in
a competitive environment
3. Increasing Demand for Life Insurance Products: There has been a continuous growth in the life insurance market relative to GDP and life insurance
premiums have been increasing. Life business was generally less affected by the economic downturn of the past few years
4. Merger & Acquisition activity: The insurance sector is booming with mergers and acquisitions mainly with companies trying to protect their market
share in a competitive environment. Some of the M&A deals include Jubilee Holdings announcing a strategic transaction with Allianz, a German
multinational Underwriter and asset manager, in September 2020, for the sale of 66.0% stake in the general business excluding medical for a total
consideration of Kshs 10.8 bn. We expect that this amount will be ploughed back in to the company as part of the capital boost to grow other business
lines
5. Revenue Diversification - There has been need for diversification necessitated by the slow growth in premiums against an increase in underwriting
expenses, leading to insurers pursuing non-traditional asset classes. For example the FY’2020 saw Jubilee Holdings invest Kshs 4.2 bn in Bujagali Power
Plant in Uganda, thus increasing the ownership stake to 18.2% from 8.8%
20Insurance Sector Market Share
UAP Old Mutual leads in General Insurance business, while Britam dominates in Long term Insurance market
Market Share as at FY’2020
General Insurance Business Long-Term Insurance Business
Insurer Insurer
Market Share Market Share
UAP Old Mutual 8.1% Britam Holdings 23.8%
CIC Group 7.8% ICEA Lion Insurance 14.5%
APA Insurance 7.3% Jubilee Insurance 13.0%
Jubilee Insurance 6.4% Kenindia Assurance 6.8%
Britam Holdings 6.3% Sanlam Insurance 5.7%
Others 64.1% Others 36.7%
Total 100.0% Total 100.0%
Source: IRA Q4’2020 report
• The top 5 insurance companies control 35.9% of the General Insurance market share
• In terms of long term insurance, the top 5 insurers control 63.3% of the market share
214. Listed Insurance Sector Metrics
22Listed Insurance Sector Metrics
Net premiums, Net Claims, Total Assets and Shareholder Equity have recorded all steady growth over the years
Net Premiums (Kshs Bn) Net Claims (Kshs Bn)
100.0 70.0 CAGR 4.1%
CAGR 5.8% 57.1 57.6 54.7
77.0 78.5 60.0
80.0 68.1 70.0 71.4 47.0 48.4
60.4 64.3 50.0 43.9 40.8
60.0 40.0 35.0
45.4
30.0
40.0
20.0
20.0 10.0
0.0 0.0
2013 2014 2015 2016 2017 2018 2019 2020 2013 2014 2015 2016 2017 2018 2019 2020
Total Assets (Kshs Bn) Shareholders Equity (Kshs Bn)
500.0 120.0
392.5 CAGR 2.2% 93.9 97.2
CAGR 8.4% 360.8 100.0
400.0 344.4 357.8 81.1
302.9 74.7 77.5 77.5 71.0
260.1 282.9 80.0
300.0 59.8
205.3 60.0
200.0
40.0
100.0 20.0
0.0 0.0
2013 2014 2015 2016 2017 2018 2019 2020 2013 2014 2015 2016 2017 2018 2019 2020
23Listed Insurance Sector Metrics
Loss ratios remain under control, however, Solvency ratios have been on a decline
Solvency Ratio Expense Ratio
30.0% 80.0%
26.0%
23.7% 23.3% 23.8% 62.9%
25.0% 22.1% 22.3% 53.2% 56.8%
19.5% 19.0% 60.0% 50.8% 49.8% 49.6%
20.0% 43.7% 45.6%
15.0% 40.0%
10.0% 20.0%
5.0%
0.0%
0.0%
2013 2014 2015 2016 2017 2018 2019 2020
2013 2014 2015 2016 2017 2018 2019 2020
Loss Ratio Combined Ratio
100.0% 160.0% 151.0%
88.1%
90.0% 85.7%
82.1% 140.0% 132.7% 135.5% 131.7% 136.2%
77.1% 79.5% 79.4% 120.8% 113.5% 114.7%
80.0%
67.9% 120.0%
70.0% 63.9%
60.0%
100.0%
50.0% 80.0%
40.0% 60.0%
30.0% 40.0%
20.0%
20.0%
10.0%
0.0%
0.0%
2013 2014 2015 2016 2017 2018 2019 2020 2013 2014 2015 2016 2017 2018 2019 2020
24Listed Insurance Earnings and Growth Metrics
The Loss and Expense ratios increased across the sector
Listed Insurance Companies FY'2020 Earnings and Growth Metrics
Core EPS Net Premium Claims Expense Combined
Insurance Loss Ratio ROaE ROaA
Growth growth growth Ratio Ratio
Jubilee Insurance 1.7% 3.3% 3.4% 101.3% 56.3% 157.6% 12.3% 3.0%
Liberty (2.0%) (2.9%) (0.4%) 55.2% 45.9% 101.1% 8.1% 1.7%
CIC (192.3%) (3.2%) (0.9%) 71.4% 50.1% 121.5% (3.9%) (0.8%)
Britam (357.2%) 0.5% 20.8% 85.7% 78.5% 164.2% (39.2%) (6.9%)
Sanlam (168.4%) 21.3% 18.5% 83.7% 54.2% 137.9% (4.8%) 0.3%
*FY'2020 Weighted Average (157.9%) 1.6% 9.5% 88.1% 62.9% 151.1% (9.4%) (1.3%)
**FY'2019 Weighted Average 6.4% 10.2% 16.3% 79.4% 56.8% 136.2% 11.9% 3.3%
*Market cap weighted as at 25/05/2021
**Market cap weighted as at 17/07/2020
25Listed Insurance Sector Trading Metrics
Kenya's Insurance sector is trading at an average P/TBV of 0.6x and a P/E of 3.6x
Insurance Company Share Price* No of Shares Market Cap P/TBV P/E
Jubilee Holdings 280.0 0.1 20.3 0.6x 5.0x
Sanlam Kenya 11.0 0.1 1.6 1.0x 11.1x**
Liberty Holdings 7.0 0.5 3.8 0.5x 5.4x
CIC Group 2.1 2.6 5.5 0.7x 24.3x**
Britam Holdings 7.2 2.5 18.2 1.2x 7.9x**
Median 0.7x 7.9x
Weighted Average FY'2020*** 0.6x 3.6x
*Share Price as at 25th May 2021
** 5 year normalized P/E
*** The weighted average is based on Market Cap as at 25th May 2021
26Listed Insurance and Banks Trading Metrics
The listed Insurance sector is trading at an average P/B of 0.8x, lower than the banking sector which is priced
at 0.9x. Both sectors are trading below their 15-year averages of 1.5x and 1.9x, respectively
Price to Book Comparison
4.0x
3.4x
3.5x
3.1x
3.0x
2.5x 3.1x
2.5x 2.3x 2.3x 2.3x
2.5x 2.0x 1.7x
2.0x 1.7x
1.5x 1.4x 1.4x 1.5x
1.9x
1.5x 1.3x 1.2x 1.4x
1.6x 0.9x
1.0x 0.8x 1.3x
1.1x 1.0x
0.5x 0.8x
0.0x
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Banking Insurance
On a price to book valuation, listed Insurance companies are currently priced at a PBV of 0.8x, lower than listed banks
0.9x, with both lower than their historical averages of 1.5x for the insurance sector and 1.9x for the banking sector
275. Cytonn’s Insurance Sector Report
28Executive Summary
• All listed insurance companies in the Kenyan market were analyzed by the Cytonn Investment Team
• The analysis was brought about by a need to be able to offer our investors, especially global investors, which insurance companies in our
view are the most stable from a franchise value and from a future growth opportunity perspective
• The analysis covers 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
• For insurance companies which are part of a group structure, the financials of the group were utilized to take into consideration the listed
counter which an investor will purchase
• Ranking based on a weighted average ranking of Franchise value (40.0%) and Intrinsic value (60.0%)
• All the listed insurance companies are composite insurance companies, offering both life and general business
29Regulation and Consolidation to Drive Attractiveness
Focus Area Summary Effect on Insurance Sector
• Risk Based-Supervision: The IRA is implementing risk- • Regulatory changes are foreseen to impact the sector positively
based supervision which looks at the risk exposure of a in line with international best practices, thus buoying investor
Regulation company confidence in the capitalization and future position of the
• IFRS 17: Effective January 2023 or earlier, changes will Insurance sector
encompass a new profit recognition approach, and • IFRS 17 will affect the volatility of profits, net assets and equity
immediate recognition of losses in the Insurance sector
• Digital Innovations: High mobile phone penetration rates • Leveraging more on technology will transform how the
in Kenya have aided in the digitization of distribution insurance business is conducted. The use of Blockchain
Digital technology, AI and Big Data will also help prevent fraudulent
channels, shifting focus to the customer. Insurtechs
Innovations claims by enabling early detection and audit trails
continue to disrupt competition in the industry
• Increase in Mergers & Acquisitions: Increased • With capital adequacy requirements at risk following capital
buffer erosion from the negative effects of the pandemic, we
20
competition amongst players in the insurance sector has
expect the more M &A activity as smaller players loo to
seen companies looking for ways to protect their market
Consolidation 13
share in an evolving environment strengthen their capital and market positions
• Fraudulent claims: It is estimated that 25.0% of the • Fraudulent claims have had the effect of hurting the
insurance industry’s income fraudulently claimed. In profitability, translating into high premium rates and huge
FY’2020, 143 fraud cases were reported to the Insurance claim reserve ratios. As a result, verification of claims has
Insurance Fraud resulted in the slowing down of the settlement pace
Fraud Investigation Unit, with Motor Insurance Claims
being the most prevalent
Regulatory trends in the Insurance sector will very much determine growth and investments prospects. Newer minimum capital requirements are expected to set
off mergers and acquisitions in the sector, with many insurers failing to meet the minimum. The regulatory reforms also present an opportunity to international
firms to enter into the Kenyan market, given it has strong economic growth prospects
www.cytonn.com
30 30Rankings by Franchise Value
Liberty Holdings presents the most attractive insurance franchise, with a Score of 15
Combined
Insurance Company Loss Ratio Expense Ratio Ratio ROACE ROaA Total Rank
Liberty Holdings 1 1 1 2 2 15 1
Jubilee Holdings 5 4 4 1 1 19 2
CIC Group 2 2 2 3 3 20 3
Sanlam Kenya 3 3 3 4 4 22 4
Britam Holdings 4 5 5 5 5 29 5
31Valuation Summary of Listed Insurers
Jubilee presents the highest upside with an expected total return of 21.4%
Insurance Company Current Price Target Price Upside/(Downside) Dividend Yield Total Potential Return
Jubilee Holdings 280.0 330.9 18.2% 3.2% 21.4%
Liberty Holdings 7.0 8.4 19.4% 0.0% 19.4%
Sanlam Kenya 11.0 12.4 12.6% 0.0% 12.6%
Britam Holdings 7.2 6.7 (7.9%) 0.0% (7.9%)
CIC Group 2.2 1.8 (15.0%) 0.0% (15.8%)
32Cytonn Insurance Report – Comprehensive Rankings
Jubilee Holdings emerged top of the rankings, leading in both Franchise & Intrinsic Valuation
CYTONN FY’2020 COMPREHENSIVE RANKINGS TABLE
Bank Franchise Value Score Intrinsic Value Score Weighted Score FY'2020 Ranking
Liberty Holdings 15 2 7.2 1
Jubilee Holdings 19 1 8.2 2
Sanlam Kenya 22 3 10.6 3
CIC Group 20 5 11.0 4
Britam Holdings 29 4 14.0 5
• Liberty Holdings took the Top Position, ranking top in the franchise score category on the back of a strong combined ratio, indicating
better capacity to generate profits from its core business.
• Jubilee Holdings took 2nd Position, on the back of a strong franchise score, driven by the highest Return on Average Equity. The only factor
holding Jubilee back is its loss ratio, which is the highest among listed companies,
• Sanlam Kenya & CIC Group came in 3rd and 4th Position, respectively, with weaker franchise scores, as a result of lower returns on assets
and equity (CIC Group) and high loss and expense ratios (Sanlam),
• Britam holdings came in 5th Position on the back of weak franchise rankings scores.
336. Appendix – Valuation Summaries
34Valuation Summary – Jubilee Holdings
Jubilee Holdings is undervalued with an upside of 21.4%
Valuation Summary: Implied Price Weighting Weighted Value
Residual Income 271.0 40.0% 108.4
Dividend Discount Model 407.0 40.0% 162.8
PBV Multiple 271.5 15.0% 40.7
PE Multiple 78.6 5.0% 18.9
Fair Value 330.9
Current Price 280.0
Upside/(Downside) 18.2%
Dividend Yield 3.2%
Total Upside/(Downside) 21.4%
35Valuation Summary – Sanlam Insurance
Sanlam Insurance is Undervalued with an upside of 12.6%
Valuation Summary Implied Price Weighting Weighted Value
Residual Income 11.8 75.0% 8.9
PBV Multiple 14.0 20.0% 2.8
PE Multiple 14.0 5.0% 0.7
Fair Value 100.0% 12.4
Current Price 11.0
Upside/(Downside) 12.6%
Dividend Yield 0.0%
Total Return 12.6%
36Valuation Summary – Liberty Holdings
Liberty Holdings is Undervalued with an upside of 14.8%
Valuation Summary: Implied Price Weighting Weighted Value
Residual Income 3.2 40.0% 1.3
Dividend Discount 7.7 40.0% 3.1
PBV Multiple 21.9 15.0% 3.3
PE Multiple 15.3 5.0% 0.8
Fair Value 100.0% 8.4
Current Price 7.0
Upside/(Downside) 19.4%
Dividend Yield 0.0%
Total Return 14.8%
37Valuation Summary – Britam Holdings
Britam Holdings is overvalued with a downside of 7.9%
Valuation Methodology Implied Price Weighting Weighted Value
Dividend Discount 7.6 40.0% 3.0
Residual Income 6.7 30.0% 2.0
PBV 4.0 15.0% 0.6
PE 6.8 15.0% 1.0
Fair Value 6.7
Current Price 7.2
Upside/(Downside) (7.9%)
Dividend Yield 0.0%
Total Return (7.9%)
38Valuation Summary – CIC Group
CIC Group is Overvalued with a downside of 15.8%
Valuation Summary: Implied Price Weighting Weighted Value
Dividend Discount Model 1.8 40.0% 0.7
Residual Income 1.8 40.0% 0.7
PBV Multiple 2.3 15.0% 0.4
PE Multiple 0.5 5.0% 0.0
Fair Value 100.0% 1.8
Current Price 2.2
Upside/(Downside) (15.8%)
Dividend Yield 0.0%
Total Return (15.8%)
39Thank You!
For More Information
• Free Market Research: www.cytonnreport.com
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For more information or any further clarification required, kindly contact the research team at investment@cytonn.com
Disclaimer: The views expressed in this publication, are those of the writers where particulars are not warranted. This publication, which is in compliance with Section 2 of the Capital
Markets Authority Act Cap 485A, is meant for general information only and is not a warranty, representation, advice or solicitation of any nature. Readers are advised in all
circumstances to seek the advice of a registered investment advisor.
40Q&A / AOB
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