In a strategic move that is poised to reshape its business landscape, the Kenya Reinsurance Corporation has announced its intention to withdraw from the Indian market due to mounting losses. The Indian market, which currently accounts for approximately 32% of the company’s gross premiums, has become a challenging space for the reinsurer. This decision is expected to have a significant impact on the company’s geographical distribution of premium sources, prompting a renewed focus on other markets, including its domestic market and African countries.
Managing Director Hillary Maina Wachinga elucidated that underwriters in India have encountered substantial losses, primarily stemming from challenges within the agricultural sector. The Asian country has been grappling with adverse weather conditions, including tropical cyclones and flooding, which have severely affected its agriculture industry. As a result, Kenya Reinsurance Corporation found itself grappling with significant losses, prompting the need for a strategic withdrawal from the Indian market.
“We are doing a strategic withdrawal from the Indian market where we suffered heavy losses in the agriculture business and if you look at our half-year performance, you will notice we have taken a cut in premiums because we have forgone Sh2 billion premiums from the Indian market,” said MD Dr. Wachinga in his latest official public statement to stakeholders.
The company’s financials for the half-year period ending in June 2023 provided a clear snapshot of the situation. Net premiums experienced a substantial decline, plummeting from Sh9.7 billion the previous year to Sh6.4 billion. The decision to forgo Sh2 billion in premiums from the Indian market was a pivotal step taken to mitigate further losses. These changes are expected to reshape the company’s premium sources, tilting the focus more heavily towards its home market, Kenya.
The Indian market’s significance to Kenya Re was emphasised by a report from South African credit rating firm Global Credit Rating. The report highlighted India’s role as Kenya Re’s second-largest contributor to business, contributing 32% of the company’s gross premiums. With the exit from this market, Kenya Re will undoubtedly experience a notable shift in its strategic direction.
The withdrawal from the Indian market does not signal a retreat for Kenya Reinsurance Corporation. Instead, the company is gearing up to capitalize on emerging opportunities within the African market, particularly with the advent of the African Continental Free Trade Area (AfCFTA). To strengthen its presence across the continent, the company plans to establish satellite offices in key African economies, including the Democratic Republic of Congo (DRC) and South Africa. Additionally, existing offices in Abidjan and Lusaka will be reinforced.
“We intend to really support the subsidiaries that we have in Africa by opening new satellite offices targeting big economies specifically the Democratic Republic of Congo (DRC) and South Africa and support our Abidjan and Lusaka offices,” stated Dr. Maina Wachinga
Kenya Re’s commitment to expanding its African footprint is driven by the belief that Africa’s evolving economic landscape holds immense potential. By establishing a stronger foothold in key African economies, Kenya Re aims to tap into emerging growth opportunities and provide more extensive support to its subsidiaries.
Financial results for the first half of 2023 underscored the company’s resilience and adaptability. Despite challenges in the Indian market, Kenya Re recorded a net profit of Sh904.1 million, showcasing an impressive growth rate of 8.6% compared to the previous year’s figure of Sh832.1 million. This growth was primarily attributed to a significant reduction in costs, including operating expenses and claims paid to insured parties.
The company’s ability to weather challenges and maintain profitability is evident in its performance metrics. Notably, net claims and benefits saw a substantial drop of Sh2.3 billion, settling at Sh4.1 billion. Furthermore, operating and miscellaneous expenses experienced a drastic reduction, decreasing from Sh997.3 million to Sh275.3 million. This positive trend underscores Kenya Re’s commitment to streamlining its operations and optimising its cost structure.
The transition away from the Indian market has led Kenya Reinsurance Corporation to reevaluate and refine its strategic direction. The company’s revised approach emphasises quality underwriting and strategic expansion, particularly in regions with significant growth potential. South Africa, for instance, stands out as a market with substantial premiums and risks. While the South African market contributes a substantial 70% of gross written premiums in Africa, Kenya Re’s current earnings from this market are under $1 million (Sh150 million). The company is actively exploring strategies to enter this lucrative market more effectively.
“South Africa alone, for instance, contributes 70 per cent on gross written premiums in Africa and currently we are getting less than $1 million (Sh150 million) from that market.” revealed Kenya Re MD Dr. Wachinga. “We are trying to do our feasibility on how best to get into that market.” he added
As Kenya Re sets its sights on the future, its 2022-2026 strategy outlines ambitious targets, aiming to extend its reach to 100 countries and serve 1,000 companies. This growth trajectory aligns with the company’s mission to provide comprehensive reinsurance services across Africa, the Middle East, and Asia. By leveraging its expertise and strategic insights, Kenya Re aims to enhance its presence, support its subsidiaries, and seize emerging opportunities in dynamic markets.