Nairobi,Kenya
Even though insurance companies listed on the Nairobi Securities Exchange are reaping good returns, slow growth is sending CEOs back to the drawing board to map out diversification strategies.
Dogged with low market penetration mainly due to lack of awareness among the buying public and poor distribution models, insurance companies, unable to generate enough revenues internally, have lately turned to NSE to boost their capital bases.
CIC Insurance, for instance, listed through introduction in July this year to raise expansion capital. Other insurance companies listed on the NSE are Jubilee Holdings, Pan African Insurance Holdings ltd, CFC Insurance Holdings and British American Investment Company (Kenya).
A number of insurance companies are now eying investments in property and hospitality industry to grow revenues due to volatility in the stock market. The NSE has remained depressed for the most part of the last five, leading losses on some counters and low returns from others.
While announcing its half-year results for the period ended June 31, 2012, British American Investments Company Group Managing Director Mr Benson Wairegi said its NSE investments had overly outdone growth in other asset classes.
“Historically, British American has diversified its investment portfolio to include the many asset classes that we are familiar with: property, equity, mortgages, commercial bonds and treasury bills,” Mr Wairegi said.
“Over time particularly in the recent past because of the strong growth in the NSE and the very strong performance of the particular stocks that we have invested in, we have found that our investments in the NSE have outstripped the growth in other asset classes to the point where as at June 30, our equity portfolio constitute about 39% of our budget.”
He said even though returns are impressive, stocks investments introduce a lot of volatility in its earnings.
“Our performance is very strongly co-related with the performance of the capital markets. So what is driving our diversification is to reduce that concentration in the stock market and redirect some of these investments to other asset classes, primarily property and fixed income,” he said.
British American’s property investments now constitute about 7% of its portfolio, he said, adding that the target is to level it with equity investment.
Hoping to cash in on the influx of international companies seeking to set up office in Nairobi, the group has earmarked a type A office block in Upper Hill area targeting blue-chip tenants.
“A lot of international companies are seeking to set up operations in Kenya, and they would be looking for good office accommodation. We are putting up an office block in Upper Hill designed to respond to that need,” said the director.
Also, British American has set eye on the counties, with the devolution of government in mind.
“We see a big demand for office accommodation in many of these counties; we see a big demand for accommodation for all these staff that will be moving from the central government and because businesses will be done in those counties, we also see a big demand for hotel accommodation,” he said.
The company recorded Sh 1.8 billion in profit before taxation, a marked turnaround from the more than Sh109 million loss reported over the same period last year. The group recorded an investment income of Sh2.6 billion. The company attributed its poor performance in 2011 to the 31% plunge in the NSE and the high exposure of the Group’s investment portfolios to the stock market.
The group offers a wide range of products including life insurance, pensions, health insurance, and general insurance through its insurance arm of business to individuals, small businesses, corporations and government entities.
It also provides financial solutions, which include unit trusts, investment planning, wealth management, offshore investments, retirement planning and discretionary portfolio management which it offers through its asset management business.
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