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Insurance firms slash stock investments on NSE

Austin Wekesa by Austin Wekesa
February 7, 2024
in News
Reading Time: 2 mins read
Photo/Courtesy

Photo/Courtesy

Insurance firms have substantially curtailed their stock investments, marking a record dip to below 2.0% of their portfolios, in response to ongoing investor exodus from the Nairobi Securities Exchange (NSE).

Data disclosed by the Insurance Regulatory Authority (IRA) reveals a notable 27% decline in the sector’s investments, plummeting from KES 26.5 billion to KES 19.4 billion over the one-year period ending September 2023. This downturn has driven insurance companies’ investments in listed entities to an unprecedented low of 1.9%, relative to total assets worth KES 1.03 trillion, continuing a downward trajectory initiated in 2021.

This downward trend may be attributed to lackluster performance among listed firms, juxtaposed with more attractive interest rates offered by government securities such as Treasury bonds and bills.

Consequently, long-term insurers have augmented their holdings in government securities by 10.3%, while general insurers have seen an 8.2% increase. Both segments now allocate over half of their investments to government securities.

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In 2014, government securities accounted for 45.0% of the insurance sector’s investments, with listed companies comprising 20.0%. However, this proportion has steadily declined over time. Over the past three years, investments in listed equities have dwindled by over 45.5%, as government securities, term deposits, and investment properties have provided more stable returns.

The NSE has grappled with numerous challenges, including the Covid-19 pandemic, currency shortages, and escalating interest rates, resulting in considerable erosion of investor wealth. Last year alone, the NSE witnessed a 27.5% decline in paper wealth, equivalent to approximately KES 547 billion.

Consequently, in light of the persisting bearish sentiment in the market, insurers have opted to limit their exposure to equities, prioritizing the safeguarding of their profitability.

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