Mr. Jadiah Mwarania, Managing Director, Kenya Re. [PHOTO - COURTESY]

Leading State Corporation celebrates its golden jubilee on a high note by registering good results in the first half of the year, despite a very challenging operating environment

By George Gichuki

Marking the fiftieth anniversary is not a mean achievement for organizations. It is a culmination of a lot of focus, dedication and sacrifice. It is also a testimony that all those involved in running the business at all levels have kept their eyes on the ball relentlessly. Whereas some organizations close shop after being in the market for only a few years, others have already lost their glamour by the time they are hitting fifty.  Clearly, achieving such a milestone is not a walk in the park.  Established in December 1970 through an Act of Parliament, Kenya Reinsurance Corporation (Kenya Re) is celebrating its fiftieth anniversary this year. Like a colossus, Kenya Re has bestridden the reinsurance business in Kenya and beyond our borders.   It has subsidiaries in Cote d’Ivoire, Zambia and Uganda and a market presence in the Middle East and Asia.

 Highly rated

The golden jubilee celebrations could not have come at a better time.  The Global Credit Ratings (GCR) recently gave Kenya Re a double A plus because of its sound outlook as a reinsuring company.    Kenya Re was very strong in all the pillars that GCR took into consideration while doing the rating.  They included capitalization, business profile (diversification into various markets as well as product offering), liquidity of the organization (its ability to meet maturing obligations at any given time), the investment portfolio (the bulk of Kenya Re’s investments are in fixed deposits with commercial banks, shares in blue chip companies and government papers).  “We are able to turn most of these investments into cash within ninety days and we can immediately access the banks’ deposits whenever we require them,” says Mr. Jadiah Mwarania, Managing Director, Kenya Re.  GCR was also satisfied with the progress that Kenya Re has made in entrenching the culture of risk management into the organization.  The rating of Kenya Re by AM Best is currently in progress and hopefully, it shall be concluded before the end of this year.

According to Mr. Mwarania, Kenya Re is very strong in risk adjustment. It has also diversified its market into the whole of Africa, Middle East and Asia. “When you have a diversity of markets,   you are able to spread your risks because it is difficult for market failures to be experienced simultaneously within such a wide geographical scope,” Mr. Mwarania says.  Moreover, it has a low risk investment portfolio.  Government papers (treasury bills and treasury bonds) have a guaranteed payment once they mature, the fixed deposits are spread out in over eleven commercial banks and Kenya Re’s   stocks are spread out   in over eleven blue chip companies at the Nairobi Securities Exchange (NSE) whose dividends are consistently high.  By the same token, the organization has diversified its business portfolio. “We do both life and general business,” says Mr. Mwarania adding that in general, there are various classes of general insurance including: fire, property, engineering, motor vehicle and marine.   In such a mix, the likelihood of failure as a result of poor performance in any of these classes   of insurance is minimal.

Kenya Re also undertakes prudent underwriting.  To that end, it has developed manuals with guidelines on how to underwrite its business and the amount of premium payable in the different categories of insurance on offer. In the same vein, it carefully assesses the risk of any business before venturing into it, while being efficient in managing its expenses.  On the technical side, the organization maintains a good loss ratio as well as a competitive commission rate.  “All these factors have contributed to the high ratings that we have been given by GCR and AM Best over the years,” says Mr. Mwarania.

Performance in the first half of 2020

Kenya Re’s half year profit before tax for the period ending on 30th June 2020 grew by fifty two per cent to stand at Kshs. 2.09 billion. This is in comparison to Kshs. 1.37 billion the organization generated in the same period in 2019. The profit after tax on the other hand for the same period grew by sixty two per cent; from Kshs. 965 million in 2019 to Kshs. 1.5 billion. “The key driver of this remarkable performance   was the gross written premiums which grew from Kshs. 8.8 billion in 2019 to Kshs. 9 billion in 2020,” says Mr. Mwarania.

The fire business recorded the highest gross premium of Kshs. 2.59 billion. In addition, the gross premium from  bonds rose to Kshs. 144 million, while the life and non-life business realized Kshs. 909 million and Kshs. 8.16 billion respectively.  Despite the growth in premiums, the amount of claims was almost the same as it was in the first half of 2019.  Moreover, there was a very slight increase in the operating expenses, demonstrating how Kenya Re prudently manages its business.  Most significantly, the shareholders’ funds increased by three per cent to stand at Kshs.33.1 billion.

“This is a very good performance considering that Covid-19 has slowed down the payment of premiums and most underwriters are therefore experiencing a crunch since March,” says Mr. Mwarania. “There has been an increase in claims for medical and life insurance, while the income from travel insurance has gone down drastically,” he adds.  It is therefore gratifying that Kenya Re was able to register a high profit in the first half of this year, despite the harsh operating environment in all sectors of the economy due to the deadly Covid-19 pandemic.

Mr. Jadiah Mwarania,Kenya Re Managing Director (extreme left) and the Chairman, Mr. Chiboli Shakaba (second left) present the
Corporation’s donation of Kshs.40million to the Kenya COVID-19 Emergency Response Fund Board Chairperson, Mrs. Jane Karuku
and the Fund’s Board Member, Mr. Jeremy Awori. The money donated was channeled towards the purchase of Personal Protective
Equipment (PPE).

The second half projections

The Gross Domestic Product (GDP) of most countries where Kenya Re has a presence is likely to shrink this year due to the disruption that has been caused by Covid-19.  Nevertheless, Kenya Re is optimistic that it will achieve its targets. “ In our business plan, our target was to realize Kshs. 18.8 billion from our gross written premiums, but this might go down to Kshs. 17.8 billion due to Covid-19,” says Mr. Mwarania.  By the same token, the organization’s  investment income could be scaled down to Kshs. 2.8 billion from the Kshs. 3 billion target,  while the rental income might drop from Kshs. 906 million  to Kshs. 880 million. “ We shall still maintain our expense  ratio at below  ten percent , commission rate  at twenty seven percent, a loss ratio projection of fifty eight percent and a return on equity of about ten percent,” Mr. Mwarania observes.  

Disruption caused by Covid-19

Due to the Covid-19 pandemic, many people have lost their jobs. Consequently, they have cancelled their insurance policies or suspended their covers. This is a big blow to the insurance industry.  The growth of premiums has been depressed. In the same vein, claims have gone up, especially in the medical insurance where there has been a spike.

Business opportunities in travel insurance have been lost due to cancellations of local and international air trips. In addition, payment of premiums for motor vehicles went down when there was a lock down and travel restrictions in the country as a way of checking the spread of Covid-19.  Most vehicles were out of the road during that time. By the same token,  premiums  from  workmen’s compensation insurance have reduced since  many  businesses  have either scaled down their operations or closed shop altogether  after being disrupted by Covid-19, hence laying off their employees.

Kenya Re has a big portfolio of property. It has three commercial buildings in Nairobi (Anniversary Towers, Reinsurance Plaza and Kenya Re Towers) and one in Kisumu (Kenya Re Towers).  “Most of our small tenants have been unable to service their rent regularly since their businesses have been adversely affected by the Covid-19 pandemic,” says Mr. Mwarania adding that they are therefore expecting a decline in the income realized from property this year.   Replacing the few tenants who have left Kenya Re’s commercial buildings according to Mr. Mwarania has not been easy considering that there is an economic slowdown.  In the same breath, valuation of properties this year will be slow.

Fortunately, Kenya Re has a good mix of tenants. They are in three categories. The first category comprises the large tenants (government institutions and big corporates) who are about sixty seven percent of the business. This category has not experienced challenges in paying its rent. The second category (about twenty four percent) is medium sized organizations which have been experiencing slight difficulties in honouring their rent.  The main challenge is among the small tenants comprising about nine per cent of the business, since they are not making a lot of profit currently, as they used to do before the onset of Covid-19.

To cushion its tenants against the adverse effects of Covid-19, Kenya Re has frozen the escalation of their leases this year. It has also been negotiating with the ones who are unable to honour their rent on the due date, giving them a window to do so later.  “So far, we have not given any of our tenants a waiver, but if there is real pressure and justification to do so for maybe a quarter or two, we may consider that,” says Mr. Mwarania. “Nevertheless, we have considered giving discounts to the tenants with deserving cases,” he adds. A good case in point is one restaurant of Java House occupying a section of the ground floor space at Re-insurance Plaza.  The restaurant was out of business for a few months due to the measures that the government was undertaking in order to check the spread of Covid-19. Kenya Re has granted Java House a fifteen percent discount on rent until it fully recovers  from the Covid-19 shocks.   

Kenya Re has a huge portfolio of stocks at the Nairobi Securities Exchange (NSE). Due to the current bear run in the market, one of those stocks has lost about Kshs. 227 million.  In addition, these companies have either chosen to lower or withhold the payment of dividends, hence less income for Kenya Re. Moreover, the banking industry is currently   experiencing challenges (for instance delays in payment of loans) and hence the profitability of its members is likely to be hurt this year.  This means Kenya Re might earn less interest   from its fixed deposits in these banks.

Taking measures            

Kenya Re is implementing relevant strategies in order to mitigate the impact of Covid-19 pandemic, hence ensuring business recovery and continuity.  To that end, it is leveraging its business continuity plan in a bid to accelerate adjustments to the disruption. This has for instance enabled its staff members to work from home.  In the same vein, its robust virtual private network (VPN) connectivity allows its staff members to connect from different localities, besides accessing all the resources and systems, as they normally do while at their workstations.  The organization is also optimally utilizing the use of digital communication platforms including: Microsoft Teams, Webex, WhatsApp messaging, emails and telephone calls in order to keep in touch with its business partners. “The turnaround time for accepting our customers’ business and processing their claims should be fast and we have therefore embraced technology in order to address that need,” notes Mr. Mwarania. Through technology, Kenya Re is also offering market training (seminars) to its customers via technology since currently, it is not feasible to hold physical meetings. It is also collecting its debts virtually.

Considering that most  currencies in the African countries  have  depreciated against the US dollar, Kenya Re is holding foreign currency reserves.  It is doing so in order to hedge itself against foreign exchange losses. In the same vein, Kenya Re is investing more on treasury bills and bonds in order to safeguard its returns.

There is a paradigm shift in the property market. As people get used to working from home in the new normal that has been occasioned by the Covid-19 pandemic, demand for offices is going down. “Under such circumstances, we are keenly taking into consideration all the needs of our tenants so that we can retain all them during these turbulent times,” Mr. Mwarania says.

Giving back to the community

Kenya Re stands out because of giving back to the community.  Through its Niko Fiti campaign, the organization has over the years empowered many people with disability to undertake their day to day tasks with minimal dependency, besides facilitating them to access education and employment opportunities, ultimately leading to economic growth.

Against this background, Kenya Re recently contributed Kshs.40 million to the Covid Emergency Response Fund.  “This donation will go towards purchasing personal protective equipment for the medical staff engaged in the fight against Covid-19,” says Mr. Mwarania.

Kenya Re is also providing face masks to all its staff members as well as  hand sanitizers so that they can protect  themselves from coronavirus. By the same token, all the common areas in its offices (like lifts) are being sanitized regularly.  Through virtual meetings, the organization has minimized visits by customers and partners.  “ Nevertheless, much as fifty per cent of our customers are working from home at any given time, we are getting reports from the  managers in  all  our departments in order to ensure that  there are no disruptions in our business,” Mr. Mwarania avers. “We shall keep all these measures in place as long as it is necessary,” he adds. The measures are also being applied in Kenya Re’s subsidiaries.

The road ahead         

“We are focusing on ensuring that we achieve all the targets in our business plan this year, despite the disruption that has been caused by the Covid-19 pandemic,” says Mr. Mwarania.  According to him, the second half of the year might be more challenging than the first one. Nevertheless, by implementing all the goals that have been outlined in  its business plan, Kenya Re is confident of growing in profitability.



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