Fitch Ratings in a special report on the ‘Kenyan Insurance Market’ says that new regulations will drive consolidation in the fragmented Kenyan insurance market.
The new risk-based capital regime seeks to improve capitalization across the industry, while higher minimum capital requirements are likely to drive the consolidation of smaller insurers. This comes as the regulator aims to align the industry with global best practices.
Competition has kept prices down in recent years, while incurred claims and expenses continue to rise. Fitch sees significant scope for efficiency gains as the fragmented market structure has made it difficult for most insurance companies to achieve significant benefits of scale.
Fitch is of the view that the market will benefit as insurers seek to improve scale and capitalization. M&A (Mergers and Acquisitions) activity seems to be a likely avenue to achieve this, as the current relatively low valuations of leading Kenyan insurance companies indicate an industry that is ripe for consolidation.
Kenya’s access to the greater East African region makes it an attractive destination for foreign capital. However, poverty remains the biggest obstacle to future growth as insurance penetration remains stubbornly low. Nevertheless, there are a number of long-term growth opportunities in the Kenyan insurance market, such as agriculture and infrastructure development. Agriculture is a significant contributor to GDP at around 30% in 2015 and the government has rolled out several agriculture insurance programmes to develop the sector.
Source: Fitch Ratings
