Insurance companies in East Africa are expected to report slower profit growth for last year due to low premiums, weakening currencies and depressed equity markets.

According to the predictions contained in Cytonn Investment’s Kenya’s Listed Insurance Companies Analysis for 2015, insurance companies will register a 48 per cent fall in after tax profits, more than triple the slump of 17.29 per cent registered in 2014 and the worst in the past five years.

The Association of Kenya Insurers Report 2014 shows that since 2010, the industry has been posting an average of 13 per cent in after-tax profit. Since 2010, gross premiums have registered a growth of 20.3 per cent.

The claims are however growing at a similar rate as the premiums, a trend that could leave insurance firms struggling to raise funds to service claims and to invest.

Eleven insurance companies among them Jubilee, APA, Britam, ICEA LION, Heritage, CIC and UAP have a presence in two or more East African countries.

Last week, UAP Holdings announced that its 2015 profit after tax dropped 46 per cent to Ksh896.6 million ($8.8 million) compared with Ksh1.67 billion ($16.4 million) posted in 2014, which it blamed on higher operating costs and lower investment income in the region.

“The 2015 investment performance was impacted by the challenging business environment in East Africa, which was characterised by higher interest rates and the strengthening of the dollar against local currencies,” said UAP in a statement. The firm has operations in Kenya, Uganda, South Sudan, Rwanda, Tanzania and Democratic Republic of Congo.

UAP incurred Ksh530 million ($5.2 million) in foreign-exchange losses on a dollar-denominated loan for its Uganda property business due to a weakening Ugandan shilling. The shilling depreciated 17.5 per cent against the dollar in 2015.

Pan African Insurance Ltd, Britam and Liberty are other regional insurers expected to post at least a 25 per cent slump in profits, following the profit warnings they issued earlier in the year. Investors are likely to miss out on dividends.

“There are no factors across the region to accelerate growth beyond 20 per cent, so the warnings tell a lot about the companies’ expectations,” said Tom Gichuhi, chief executive at Association of Kenya Insurers. Listed companies, among them Liberty Kenya Holdings, issued profit warnings of up to 25 per cent for the year ending 2015.

According to Stephen Wandera, director of insurance at Britam Holdings Ltd, stockmarket performance in East Africa in 2015 was negative, due to the exit of foreign investors as local currencies plummeted.

“This affected the investment portfolios of a number of insurance companies, but there are promising prospects for better financial performance in 2016,” he said.

In Uganda, analysts said insurance companies will continue to feel the effects of the taxes on insurance products introduced in the financial year 2014/15. Stamp duty increased seven-fold to Ush35,000 ($10) from Ush5,000 ($1.44) in 2013. Withholding tax on reinsurance premiums was reduced to five per cent in the financial year 2015/16 from 15 per cent in the financial year 2014/15.

“These costs, put together, raise a client’s total spend on insurance, affecting gross premium levels while narrowing the company’s income portfolio,” said Salima Nakiboneka, an analyst of fixed income and equities at Crested Capital. Companies among them NIC Holdings Ltd (a locally listed insurance company) blamed the dip in gross premiums in the first half of 2015 on the taxes.

From an investment income perspective, insurers will have mixed fortunes depending on their asset allocation, industry experts said.

“Insurers with significant exposure in the real estate sector will outperform their peers as the boom continues to lift their property capital gains. The equities and bond markets are headed for a volatile year owing to the changing macroeconomic factors across the region,” said Thomas Njeru, an associate director of actuary services at Deloitte East Africa.

According to the Association of Kenya Insurers (AKI), insurance products are yet to appeal to the masses, with the topline drivers remaining the same — health and motor insurance. The two categories account for 25 per cent and 40 per cent respectively of the total gross premiums. Insurance penetration is rated at three per cent, which is blamed on a narrow target audience.

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“The current range of products across the region targets the middle and upper class, leaving the majority low-income earners out,” said Tom Gichuhi, AKI chief executive.

Tanzania has 2.3 per cent of its population insured, while Rwanda and Uganda have one and 0.8 per cent of their populations insured respectively. Kenya has three per cent insurance penetration.