After picking important lessons in a journey of fifty years, giant reinsurer is now focusing on conquering a future where big data will be the in thing
Established in 1970 as an underwriter offering only one class of business – marine- Kenya Reinsurance Corporation has evolved into an international player in reinsurance with strong markets across Africa, Middle East and Asia. The giant organization( popularly known as Kenya Re) celebrated its golden jubilee last year, stamping its authority in the reinsurance business, which is widely characterized by cut-throat competition. “ Our history as an institution is defined by a lot changes,” says Mr. Jadiah Mwarania, Managing Director, Kenya Re. From a small underwriter, Kenya Re spread into reinsuring fire and accident business classes. To underscore its evolution in product offering, Kenya Re is currently reinsuring a wide array of business classes – including oil and gas – as it continues to conquer more market share.
The changes of Kenya Re over time have largely been informed by government policies and the market environment. For instance, the District Focus For Rural Development, a policy embraced by the Kenyan government in the eighties, informed Kenya Re’s decision to develop property in the rural areas. Consequently, it developed and sold residential houses in Mombasa, Kisumu, Eldoret and Meru.
During that period, it also focused on physical developments ( brick and mortar model) hence putting up Reinsurance Plaza, Kenya Re Towers and the Anniversary Towers in Nairobi, Reinsurance Plaza in Mombasa ( later on sold) as well as Reinsurance Plaza in Kisumu. It earns rental income from the said properties. Mr. Mwarania emphasizes that Kenya Re’s business model in its early days was aligned to the national development agenda. “ During our establishment, we were mandated to support the socio-economic development of our country, prevent the outflow of reinsurance business, regulate the insurance industry and train its professionals,” he says. Nevertheless, the role of regulating the industry has been taken over by the Insurance Regulatory Authority ( IRA), while the College of Insurance offers training to the professionals. “ As our agenda gets crowded by other players, we have changed in order to remain relevant,” Mr. Mwarania avers.
According to Mr. Mwarania, Kenya Re is currently an enterprise which endeavours to make profits for its shareholders by providing innovative products and services to its customers in Kenya and other markets across Africa, Middle East and Asia. To that end, it has embraced business principles like strategic management, value addition and developing products that are responsive to its customers’ needs. “ We are servicing discerning customers who neither care so much about who our shareholders are nor whether we have been mandated to achieve certain national objectives,” says Mr. Mwarania. “ On the contrary, they are keen on whether they are deriving any value from us,” he adds. In that vein, Kenya Re benchmarks itself with the best reinsurance players in the world. To that end, due to its high quality management systems, Kenya Re has bagged two International Organization for Standardization ( ISO) certifications.
In this era where innovation and product development are key drivers of profitability in businesses, Kenya Re puts a very high proposition to its customers. According to Mr. Mwarania, global market trends are indicating that going into the future, business will be run more on technology and big data. Additionally, young and more discerning consumers are coming on board and their needs have to be addressed appropriately and promptly. “ These consumers are looking beyond our product offering and demanding a valuable proposition if they have to do business with us as opposed to our competition,” Mr. Mwarania avers.
In its fifty year journey, Kenya Re has learnt that employees play a pivotal role in the overall success of organizations. In addition, the leading re-insurer has learnt the importance of having a well crafted strategic plan outlining all its initiatives and action plans in order to deliver the desired goals. Another important lesson is the value in diversifying markets , product offering and investments. “ If we had stuck on offering our first product ( marine) for instance, then we would be serving a very small market,” says Mr. Mwarania.
“Developing other products like oil and gas as well political risk in response to the demand in the market has allowed us to grow and seize more market share,” he adds. Kenya Re has also been actively winning the off shore market as a diversification strategy despite the onset of the Covid-19 pandemic.
In order to understand and respond to the business environment, Kenya Re operates strictly on the principles of good corporate governance. This is in view of the fact that leadership plays a critical role in the attainment of an organization’s goals.
“ We are in an era where we have to operate transparently as an organization- the back room has disapperared and business is being conducted in the front room,” affirms Mr. Mwarania.
Over the years, Kenya Re has also learnt that adversity is inevitable in business and it is therefore important to plan for it. Being in the business of reinsuring risks, this lesson is dear to the organization. It has to be agile.
Consequently, it keeps enough reserves in its coffers in order to successfully navigate any turbulence it might face in the course of doing its business. A good example is the challenging operating environment that has been occasioned by the onset of the Covid-19 pandemic. Also recently, some legal changes in Egypt forced Kenya Re to increase its paid up capital from Kshs. 1.7 billion to Kshs. 7 billion in order to continue with its business in that country.
Having learnt that its employees are the key pillars of its success, Kenya Re offers them appropriate and relevant training, hence exposing them to the best practices in reinsurance business globally. “ We offer our staff members continuous professional development so that they are able to deal with among things the technological changes and innovations taking place on a global scale,” Mr. Mwarania says. In addition, Kenya Re has invested heavily in technology because it is the key driver of business worldwide. In that regard, it has automated its platforms for selling and interacting with customers, internal processing, marketing and settling payments.
Kenya Re has also used the knowledge gathered over the years to enhance the experience of its customers. To that end, it conducts extensive market research in order to understand what its customers need as it strives to retain them. “ Our target is to retain up to 97% of our customers,”notes Mr. Mwarania.
In order to create resilience for its business, Kenya Re has realized the need of spreading its investment and market share beyond the borders of Kenya. Consequently, it has established subsidiaries in several African countries including: Cote d’Ivoire, Zambia and Uganda. Currently, it is eyeing more business through Retakaful in North Africa where Islam is the predominant religion.
Kenya Re has also put in place a mechanism to ensure that as a business, it is not overwhelmed by a floodgate of claims.
“We have protected ourselves against all the liabilities that we take so that they do not adversely affect our business,” says Mr. Mwarania.
As a key strategy of growing its business, Kenya Re has a network of partners. These partners include insurance brokers ( who secure business for the organization at a commission) as well as other reinsurance companies in the markets where it has a presence. Finally, as the needs of its customers evolve, Kenya Re has endevoured to be more innovative in its product offering.
Performance in 2020
Kenya Re’s operating environment in 2020 was very challenging because of the Covid-19 pandemic. There was an increase in the number of claims lodged by its customers, while a number of policies were cancelled ( mainly in the travel business).
Despite this unprecedented challenge, Kenya Re was able to realize a net profit of Kshs. 3.9 billion. By the same token, its gross premium grew by 6% to close at Kshs.18.5 billion, compared to Kshs. 17.5 billion in 2019. Additionally, its net earned premium grew by 34% to stand at Kshs.20.8 billion, compared to Kshs. 15.5 billion in 2019. Moreover, it realized an investment income of Kshs. 3.8 billion, which was a growth of 2%.
Significantly, Kenya Re’s total assets in 2020 grew to Kshs. 53 billion from Kshs. 50 billion in 2019. The shareholders’ funds on the other hand increased by 8% to stand at Kshs. 34.4 billion, compared to Kshs. 32 billion in 2019. Finally, in the same period, its assets portfolio grew from Kshs. 43.8 billion to Kshs. 45.7 billion.
According to Mr. Mwarania, the slight drop in profit in the 2020 financial year was due to external factors. To start with, Kenya Re changed its methodology of evaluating claims. This change led to an increase in the value of claims hence affecting the organizatiion’s bottom line. Additionally, the increase in the fair value gain of Kenya Re’s properties in 2020 was marginal since the market was depressed compared to 2019. This also reduced its profits. Moreover in 2020, the profits of Zep-Re ( one of the associates that Kenya Re has invested in ) went down by 49%. Consequently, its share of profits to Kenya Re went down by Kshs. 295 million.
On a better note, Kenya Re’s gross premium grew in 2020. Mr. Mwarania attributes that to aggressive marketing by his team. “ We worked closely with various insurance brokerage firms and coupled with direct business negotiations, we were able to increase the volume of premiums,” notes Mr. Mwarania. Its investment income on the other hand grew because of a careful selection of the banks where it fixed its deposits as well as earning high dividends from blue chip companies like EABL, BAT and Nation Media Group which it has invested in. Despite the real estate market being very challenging in 2020 because of the Covid-19 pandemic, Kenya Re was able to maintain a high occupancy in its four commercial buildings by being sensitive to its tenants’ requests and proper maintenance of the said properties.
Responsible corporate citizen
Over the years, Kenya Re has stood out as a responsible corporate citizen. Its flagship corporate social responsibility ( CSR) campaign has been NikoFiti which aims at empowering people living with disability to engage in their day to day tasks with minimal dependency, on top of facilitating them to access education and employment opportunities in order to uplift their socio-economic status. Nevertheless of late, it has not been able to have caravans ( associated with this campaign and which visit various parts of the country) due to the Ministry of Health Covid-19 guidelines and protocols.
In order to address that challenge, Kenya Re has been donating assistive devices to people living with disability as part of the NikoFiti campaign without holding crowded public gatherings.
Before the disruption of the Covid-19 pandemic, NikoFiti caravans had visited various parts of the country including : Rift Valley, Mount Kenya, Nyanza and Lower Eastern donating over 8,500 wheelchairs among other devises. In the same breath, as part of this campaign, Kenya Re had put up some facilities ( friendly for students living with disability) in Moi Girls Isinya and Lenana School. “ We built ramps in the two schools to enable students on wheelchairs to climb into classrooms and dormitories,” says Mr. Mwarania. “ We also modified ablution blocks in the two schools in order to have toilets that can be used by students living with disability with ease,” he adds.
In 2020, Kenya Re donated Kshs. 40 million to the Kenya Covid-19 Emergency Response Fund. The decision to chip in this government initiative was informed by the fact that physical activities in respect to the organization’s CSR programme were limited due to the onset of Covid-19.
Kenya Re has also partnered with the Kenya Institute of Special Education ( KISE). To that end, it has equipped one of the buildings in KISE with state of the art equipment in the gymnasium, hydrotherapy and observation rooms which are meant to serve persons living with disability throughout East and Central Africa. In the same vein, it has been engaging in treeplanting campaigns for the last seven years as a way of supporting conservation of the environment in the country. Its target this year is to plant 50,000 trees.
The road ahead
According to Mr. Mwarania, Kenya Re is on a road to success despite the challenging operating environment which has been occasioned by the Covid-19 pandemic.
“We are experiencing challenges in writing premiums, growing the business and realising high investment returns,” laments Mr. Mwarania. Some of the business classes which are not performimg optimally include : medical, travel, hospitality and agriculture
Against this background, Kenya Re is coming up with a five year strategic plan ( 2022-2026). In every year, there will be a business plan to review the relevance of this strategic plan. “ Continuous review of the strategic plan is important because the environment is ever changing,” Mr. Mwarania avers. He further says that big data will play a critical role in the road ahead. Kenya Re will also invest more on market research in order to establish the needs of its discerning customers given the competitive nature of its business.
Prudent risk management will also be a key pillar in Kenya Re’s future business. “ We should be able to put in place appropriate mechanisms in order to foresee risks and mitigate against them well in advance,” observes Mr. Mwarania. “ Therefore stress testing and application of risk management models will come in handy,” he adds. In the same vein, rating will continue playing a major role in assisting customers to determine which reinsurance company they should engage.
Most importantly, Kenya Re will cautiously scan the markets it intends to venture into so as to develop appropriate products and strategies. “ We need to compete effectively in all our markets,” Mr. Mwarania says. While appreciating that the customer is king, Keya Re will endeavour to shorten the turnaround time while serving its customers.
Other measures that it will put in place in order to strengthen its business include : paying its suppliers in good time, servicing the demands of its sharehoders by paying them dividends on time and meeting the regulatory requirements across all its markets.
“ Having been in the market for the last fifty years, we have learnt a lot of important lessons and by leveraging them while designing our strategic journey, we shall emerge much stronger in the days ahead,” Mr. Mwarania affirms. With such a strong foundation and clear road map, we can confidently look forward to Kenya Re’s centenary celebrations. It is just a matter of time.