New data shows that Kenyan insurance companies reduced their bank deposit portfolios in the year to December 2023 amid rising profits, despite cutting back on investments in other vehicles such as government bonds, real estate and stocks. Almost doubled.
Assets held in bank deposits by insurance companies increased by 96% last year from Sh54.7 million in 2022 to Sh107.4 million, according to new data released by the insurance regulator and obtained by the Central Bank of Kenya (CBK). It became clear.
This pushed the share of bank deposits in insurance companies’ total assets to 10.1% as of December 2023, up 4.3% from 5.8% a year ago, despite reducing asset holdings in other investment options. It became.
This comes as domestic commercial banks offer increasingly higher deposit rates and interest rates on bank loans reach record highs following a series of interest rate hikes by the central bank.
“The rise in the share of bank deposits in total investment from 5.8% in 2023 to 10.1% in 2023 may be a result of higher deposit interest rates paid by banks and improved profits for insurance companies.” CBK said in a new document. Report.
On the back of a series of central bank interest rate hikes by the CBK, deposit returns hit a record high of 10.1% last year and rose 2.63% over the year, the fastest rise in more than a decade.
The insurance company also increased its holdings in government bonds and bills from Sh701.2 million in 2022 to Sh768.1 million by the end of last year. However, the share of state-owned securities in total assets decreased by 2.1% due to increased control over bank deposits.
Real estate, common stock, loans and mortgages as a percentage of assets held by insurance companies also decreased by 1.1%, 0.8% and 0.2%, respectively.
Insurance companies now hold more assets in bank deposits than in real estate, but real estate used to be their second-largest portfolio after government securities.
Last year, the insurance company’s investment income increased by 14.5% to 76.5 million lice, highlighting the impact of the portfolio shift towards bank deposits, which is delivering improved returns.
However, while this change could lead to increased investment income for insurers, the CBK warns that increased interconnectivity could also carry additional risks for both the insurance and banking industries. .
“However, this results in increased contagion risks due to increased interconnections between banking and insurance,” the CBK said in its latest Financial Sector Stability Report.
