Low insurance penetration hamstrings East Africa’s short term insurance sector despite progressive regulatory initiatives
Summary
29 March 2021 – GCR Ratings (“GCR”) has published the East Africa Short Term Insurance Bulletin, which discusses GCR’s 2020 short term insurance public credit ratings in Kenya, Tanzania and Uganda, and the 2021 outlook. The bulletin also presents graphic comparatives of financial performance of the sample of public ratings over the period 2015 to 2019.
GCR rates 25 out of the 85 short term insurers operating in Kenya, Tanzania and Uganda, 20 of which are public ratings and the balance are private. Analysed by market, the GCR sample accounted for 47%, 28% and 74% of short-term industry gross premiums in Kenya, Tanzania and Uganda. However, the markets exhibit limited insurance penetration, a characteristic shared with most markets in sub-Saharan Africa. Kenya’s insurance penetration is the highest among the three markets at c.2.3%, while both Tanzania and Uganda have very low levels of insurance penetration at c.0.5% and c.0.8% respectively.
The total risk scores of GCR rated insurers in the three markets show a mixed ranking of insurers by markets, with Kenya and Tanzania having two insurers each in the sample’s top five and Uganda one insurer. The GCR national scale financial strength ratings for short term insurers in the three markets display a fairly wide spread distribution over the past two years. Following the introduction of the new criteria in 2019, five ratings were revised upwards, while nine ratings were affirmed, and six were revised downwards. There was rating stability in 2020, with only one downgrade being registered and the majority of ratings were on stable outlooks going into 2021.
We believe existing industry programs to drive insurance penetration, alongside efforts to cement stable and positive earnings performance, coupled with progressive improvements in the regulatory environment hold potential to positively impact credit profiles of individual sectors over the medium term. This could, however, manifest at varied speeds, given different market dynamics.
GCR will periodically provide insights on key sectors/industries across different territories in which various rated entities are domiciled, encompassing changes in the operating environment, performance trends and its view of the impact of an evolution in market dynamics on the credit risk profiles of rated entities in selected industries.
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CREDIT RATINGS ISSUED AND RESEARCH PUBLICATIONS PUBLISHED BY GCR, ARE GCR’S OPINIONS, AS AT THE DATE OF ISSUE OR PUBLICATION THEREOF, OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. GCR DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL AND/OR FINANCIAL OBLIGATIONS AS THEY BECOME DUE. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: FRAUD, MARKET LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND GCR’S OPINIONS INCLUDED IN GCR’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND GCR’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND GCR’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL OR HOLD PARTICULAR SECURITIES. NEITHER GCR’S CREDIT RATINGS, NOR ITS PUBLICATIONS, COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. GCR ISSUES ITS CREDIT RATINGS AND PUBLISHES GCR’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING OR SALE.
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