I am delighted to present to you our 32nd Annual Report and Financial Statements for the year ended 31 December 2019.

The Economy
The economy is estimated to have grown by 5.4% as at Q.3 2019 compared to 6.0% in a similar period in 2018. The reasons cited for the reduced growth include a slowdown in agricultural activities due to a delayed onset of the long rains, and a decreased output in transport and electricity activities. According to the Central Bank of Kenya, the Kenyan economy is expected to grow by 5.9 % in 2019. In 2019 the average rate of inflation was 5.2% (compared to 4.7% in 2018), which is within the government’s annual target of 2.5% – 7.5%. The growth was mainly due to a rise in food and transportation costs. Going forward, it is expected to remain within this target range in the near term, mainly due to expected lower food prices thanks to favourable weather conditions, the decline in international oil prices, and the recent downward revision in electricity tariffs. Interest rates remained stable throughout the year, although in the latest interest rate review, the Monetary Policy Committee (MPC) lowered the rate to 8.5%, citing that inflation expectations remained well-anchored within the target range, and that the economy was operating below its potential level.
The MPC also welcomed the repeal of the interest rate caps on commercial bank loans, noting that they had led to significant rationing of credit. It noted that this reform would restore clarity of monetary policy decisions and strengthen the transmission of policies by allowing the Central Bank of Kenya (CBK) to adjust the monetary policy rates in response to economic developments such as changes in inflation and GDP growth. 
The Kenyan Shilling remained resilient in 2019, gaining 0.5% against the US Dollar to close at 101.3 in 2019, compared to 101.8 at the end of 2018. This was supported by inflows of hard currency from Kenyan. The development of our people continues to be a major priority in ensuring the sustainable growth of our company. We assist our staff in undertaking continuous professional development programmes to help them fulfil their potential, and we carry out uplifting performance management reviews with them. workers abroad, a narrowing of the current account deficit, CBK’s supportive activities in the money market and a high level of forex reserves – which were at USD 8.8 Bn at the end of the year (equivalent to 5.4 months of import cover, and above the statutory requirement of maintaining at least 4.0 months of import cover).
During the year under review, the equity market recorded a mixed performance, with the NASI and NSE 25 gaining by 18.5% and 15.5% respectively, while the NSE 20 declined by 6.3%. The stocks of most banks gained towards the end of the year as a result of the repeal of the interest rate cap. During 2019, T-bill auctions recorded an oversubscription, with the average subscription rate being 118.7%. The yields on the 91-day, 182-day and 364-day T-bills declined to 7.2%, 8.2% and 9.8% in 2019, from 7.3%, 9.0% and 10.0% respectively at the end of 2018. This is mainly attributed to CBK’s efforts to keep rates low by rejecting expensive bids in the auction market. The real estate sector experienced a growth of 4.8% as at Q.3 2019 according to the Kenya National Bureau of Statistics. This is due to enhanced infrastructure and the huge housing deficit in the country. However, the sector continues to face challenges such as oversupply in the commercial office and retail sectors; insufficient access to financing; and delays in the processing of construction permits by some county governments.

The Insurance Industry
The Insurance Regulatory Authority’s industry release for Q4 2019 showed that insurance premiums grew by only 5.78%. This growth was largely driven by a growth of 11.9% in the long term insurance business segment, compared to a growth of
only 1.76% in general insurance. Insurance industry premiums stood at Kshs 228.8 billion by the end of 2019, with 57.3% of
the industry business comprising of general insurance, while long-term business equated to 42.7%. The insurance industry asset base grew by 11.4% to Kshs 642.3 billion as at December 2019, while the total insurance industry’s liabilities grew by 12.8% to Kshs 516.6
billion.

Our Financial Performance:
During the year under review, the company performed commendably well despite the daunting challenges our industry faced and not least an increasingly competitive business environment. The company experienced a premium growth of 8.0 %, from Kshs 2.602 billion in 2018 to Kshs 2.810 billion in 2019. The total asset base of the company also grew from Kshs 3.943 billion in 2018 to Kshs 4.315 billion in 2019, while shareholders’ funds grew from Kshs 1.321 billion to Kshs 1.560 billion. The company posted an underwriting profit of Kshs 19.2 million during the year, down from the Kshs 27.2 million underwriting profit recorded in 2018. Our ongoing expansion and rebranding initiatives have started bearing fruit as indicated in our premium performance and in the containment of our management expenses. We expect an improvement in the underwriting result in the coming period, given our prudent underwriting practices and cost management initiatives. Our investment income grew by 6.2 %, from Kshs 358 million to Kshs 380 million. Profit before tax posted in 2019 was Kshs 307.1 million, up from the Kshs 290.7 million recorded in the previous year. Our profit after tax grew by 1.3 %, to close at Kshs 248.1 million, up from the Kshs 244.9 million posted in the previous year.

Strategic Plan Review
Following the formulation of a Balanced Scorecard- based 5-year strategic plan at the beginning of 2015, the board and senior management have constantly been driving and reviewing all aspects of the strategy. In a spirit of continuous improvement, we have re-engineered our business policies and processes, and also our technology support, to strengthen the company and improve both the top and bottom lines. I am extremely pleased with the progress achieved and the organizational and strategic flexibility championed by our board to enable us to successfully react to sudden shifts in the overall market conditions, and the company will continue working at achieving the targets stipulated in the Strategic Plan.

Further, our national claims-paying ability was affirmed at A-(KE) by the Global Credit Rating Company, a major milestone as we focus on business excellence and through it achieving increasing market prominence. Going to the Counties and Going Retail: In line with our expansion plans and the need for improved service delivery and close customer interaction, I am delighted with the opening and subsequent success of our branch network and by the retail business segment generally. I am pleased to inform all stakeholders that we shall further increase our presence at the county level by opening more branches and satellite offices to serve our wide network of clients and other intermediaries.

LIVE LIFE CONFIDENT
It was our increased spirit of dynamism and ambitiousness that led us to our highly successful rebranding programme– reflecting our new reality. Through this, with our vibrant new logo and colours and our inspiring tag line of LIVE LIFE CONFIDENT, we reinforced that spirit among our staff, our customers and other stakeholders. We strongly believe it is by living our vision and values that we will continue to strengthen the positive relationship between us all.

Appreciation
Finally, I wish to extend my sincere appreciation to all our customers, business associates and service providers for their endearing trust in us, and the resulting support and loyalty to our company, which inspires our commitment to provide the best value insurance solutions in the region. I am equally grateful to my fellow directors for their wise counsel and exemplary  leadership during the past year. I also wish to appreciate CEO Asok Ghosh and his management team for their engaged and positive leadership, and the entire staff for their dedication throughout the year.
 I am thankful to the Association of Kenyan Insurers (AKI), our consultative and advisory body, for its leadership in championing insurance growth and excellence within the region, and the various governance platforms it offers for creativity and teamwork. It is good to know that our CEO Asok Ghosh serves on the board of AKI. I am also thankful to the Insurance Regulatory Authority for their supervisory support and guidance, and while expecting this to continue in future I assure them of our company’s commitment to the industry’s robust development in all respects.

Mike Eldon
26th  March 2020.

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