Insurance sector profits down 23% as claims rise by Sh17 billion

The insurance industry has reported a sharp fall in profits in the second quarter of 2025,  triggered by a Sh17 billion increase in claims, mainly medical and motor.

Despite robust growth in premium collections, the industry’s net profits dropped to Sh12.8 billion from Sh16.7 billion in the same period last year.

Latest Insurance Regulatory Authority data shows that total claims and policyholder benefits across general, long-term, and micro-insurance segments rose by 16 per cent to Sh123 billion, up from Sh106 billion in Q2 2024.

This spike eroded the bottom line, even as total premiums jumped 13.4 per cent to Sh241.3 billion compared to Sh212.8 billion a year earlier.

The biggest drain on insurer revenues came from the general insurance segment, where claims incurred climbed to Sh55.1 billion from Sh51.8 billion in Q2 2024.

“General Insurance Business remained the largest contributor to industry insurance premium contributing 53.8 per cent of the total premium. Medical and Motor classes of business account for 67.6 per cent of the gross premium income under the general insurance business,” IRA said in the report.

Medical insurance continued to account for nearly half of all claims (49.4per cent), followed by motor commercial (20.4per cent) and motor private (20.2per cent) classes.

Together, the two motor classes contributed more than 40 per cent of industry claims despite generating just a quarter of premium income, pointing to a persistent underwriting loss in these lines.

Medical claims alone surged by 16.9 per cent to Sh27.2 billion, as the government continued to push for adoption of the Social Health Authority, reflecting rising healthcare costs and increased utilisation of health covers.

The loss ratio for the class stood at 81 per cent, well above the industry average of 73 per cent, putting a stress on the strain on margins.

In the long-term insurance segment, claims and policyholder benefits rose even more steeply up 34.6per cent to Sh67.6 billion from Sh50.2 billion.

The spike was mainly attributed to higher payouts on life policies and group life covers.

The industry’s gross premium income expanded by double digits as more Kenyans took up insurance covers, with net premiums rising 21.9 per cent to Sh196.8 billion.

Investment income also provided a cushion, climbing 24.2 per cent to Sh77 billion, helped by strong returns from government securities which dominate industry portfolios.

But the positive revenue trend was outweighed by surging obligations. Management expenses rose 15.3 per cent to Sh32.9 billion while commissions to intermediaries jumped 50.4per cent to Sh11.7 billion.

The combined impact of higher claims, expenses, and commissions cut profit before tax to Sh15.6 billion, down 30 per cent from Sh22.4 billion in Q2 2024.

“The increase in gross premiums shows improving insurance uptake, but the claims environment is deteriorating faster than revenues are growing,” IRA noted in the report.

Reinsurers were not spared by the turbulence. Their overall profit after tax, though positive at Sh2 billion, reflected only a modest recovery from last year.

The general reinsurance segment saw incurred claims ease slightly to Sh7.3 billion, but net premium income fell 6.8 per cent to Sh14.5 billion. Operating profit for general reinsurers slipped by 8.3 per cent to Sh3.06 billion.

When reinsurers’ results are factored in, the industry’s total after-tax profit shrank to Sh14.8 billion from Sh16.7 billion a year earlier — an 11.5 per cent decline.

The sector’s balance sheet expanded despite the earnings pressure. The total asset base grew 18.4 per cent to Sh1.37 trillion in the period, while liabilities rose nearly 20 per cent to Sh1.12 trillion.

Investments in government securities surged 20.3per cent to Sh856 billion, reinforcing their dominance as the preferred low-risk asset class.

Shareholders’ funds increased 12.7 per cent to Sh91.3 billion in general insurance and 9.6per cent across the wider industry, signaling continued capital strengthening in line with regulatory requirements.

The report shows motor and medical insurance which together account for the majority of premiums remain chronically loss-making due to rampant fraud, high medical inflation and weak pricing discipline.

At the same time, complaints from policyholders remain high. IRA said it received 423 complaints in Q2 2025, with general insurance accounting for nearly 80 per cent of the grievances.