Kenyan insurers nearly doubled their portfolio in bank deposits in the year to December 2023, new data shows, amidst growing returns even as they cut their investment in other avenues including government securities, property and equities.
New data from the Insurance Regulatory Authority and captured by the Central Bank of Kenya (CBK) reveals that last year, insurance companies increased their assets held in bank deposits by 96 percent from Sh54.7 million in 2022 to Sh107.4 million.
This raised the share of the insurers’ total assets held in bank deposits by 4.3 percent to 10.1 percent as of December 2023, from 5.8 percent a year before, even as they dropped their asset holding in other investment options.
This came amidst increasingly high interest rates offered on deposits by commercial banks in the country, following a series of central bank rate increases that also saw the interest rate on bank loans hit an all-time high.
“The increase in the share of bank deposits to 10.1 percent in 2023 from 5.8 percent of total investments in 2023 may be as a result of higher deposit rates being paid by banks, thus improving earnings for insurance companies,” the CBK said in a new report.
Return rates on deposits last year increased fastest in over a decade, hitting an all-time high of 10.1 percent, a cumulative rise of 2.63 percent through the year, coming on the back of a series of central bank rate hikes by the CBK.
Insurers also increased their holdings of government bonds and bills from Sh701.2 million in 2022 to Sh768.1 million by the end of last year. The share of total assets held in State securities, however, fell 2.1 percent, due to the growing dominance of bank deposits.
The share of assets held by insurers in property, ordinary shares, and loans and mortgages also declined by 1.1 percent, 0.8 percent, and 0.2 percent respectively.
The insurance companies now hold more assets in bank deposits than in property, which was previously their second-largest portfolio after government securities.
Last year, insurers’ earnings from investment rose 14.5 percent to Sh76.5 million, highlighting the impact of shifting their portfolio to bank deposits which have been offering increased returns.
But while the shift may lead to more investment income for insurers, the CBK warns that it may come with additional risk for both the insurance and banking industries due to the increased interconnectedness.
“This however introduces increased contagion risk due to increased interconnectedness between banks and insurance,” CBK said in the latest Financial Sector Stability report.
