BARONS OF POWER

A small group of powerful politically-connected tycoons controls billions in the insurance industry, writes John Kamau

Formerly Alico until it was acquired by CFC.

Kenya’s multi-billion shillings insurance industry is in the hands of a few politically connected ex-politicians and suave businessmen who sit on the boards either as chairmen or directors.

Investigations by The Sunday Standard show that the insurance industry has been a soft target for the well connected to make a quick buck.

As the companies continue to flourish and publish their annual financial statements, it emerges that the ownership of the industry reads like who is who in Kenya.

Although some of the best-known names have not been influencing how their companies access business, it is common knowledge in the insurance industry that invoking some of the names means or used to mean instant business.

And why not?

Since the Jomo Kenyatta and Moi regimes, those close to the presidency were able to build empires that revolved around the insurance industry and the Kibaki presidency is no exception.


Philip Ndegwa

The most notable success story in the 15-year Kenyatta rule through Moi and now Kibaki was the late Phillip Ndegwa, who was Kenyatta’s Finance Permanent Secretary and later on — from 1982 — Governor of Central Bank of Kenya.

Ndegwa’s family has built a fortune through the Insurance Company of East Africa (ICEA), which was incorporated in November 1964 with a share capital of less than Sh4 million.

Today ICEA is one of the best performing wholly Kenyan insurance companies. The Ndegwa family also owns ICEA building in Nairobi’s Kenyatta Avenue, Ambank House on University Way, Riverside Park with 150 apartments in Chiromo, the high cost Riverside Gardens on Chiromo Road and some 42 apartments known as St Austin Gardens off James Gichuru Road in Nairobi.

Other businesses associated with ICEA are Greenwood Lane Apartments in Mombasa and Mombasa’s Maritime Centre among many other single properties in Muthaiga and near Nairobi’s State House.

The Ndegwa family also owns Lion Insurance of Kenya, which is headed by James Ndegwa via Ndegwa’s flagship, First Chattered Securities.

By striking it rich via the insurance business, Ndegwa left many a politician eager to try their hands in the money-spinning empire. It is from Ndegwa’s experience that insurance became the target of those close to power.

Copycats have been many. No wonder when Narc came to power, Dr Chris Murungaru and Solicitor General Wanjuki Muchemi’s co-owned Canopy Insurance moved to expand its territory.

Because of the political heat that surrounds their two offices, Murungaru and Muchemi have of late erased their names from directorship of the company which is now held by Suntra Stocks as nominees.

Of the Kenyatta family, the best-known insurance business has been Blue Shield is run by Beth Muigai, the wife of the late Peter Muigai Kenyatta, a one time MP for Juja and assistant minister for Foreign Affairs.

Initially, during the Kenyatta era, Andrew Ngumba, a former Nairobi mayor, had some interests in Blue Shield, but this was because Beth Muigai also happened to be Ngumba’s sister.

Mama Ngina Kenyatta used to own shares in the First Assurance Company but industry insiders say she owns no interests in the company today. The Kenyatta family also owned Fairway Insurance Brokers, which has since closed down.


Jeremiah Kiereini
Of the Kenyatta era top shots, others who had interests in the insurance industry include former Attorney General Charles Njonjo and once-powerful head of civil service and secretary to the Cabinet, Mr Jeremiah Kiereini, who in 1991 acquired the controlling interest in Heritage AII Insurance Company through Credit Finance Corporation, a company in which they still have interests.

Originally the management of the parent Heritage Insurance Company — before it merged with African International Insurances in 1997 to form the modern day Heritage AII Insurance — were Jeremiah Kiereini, Julius Gecau, a former chairman of Kenya Power and Lighting, Ben Gethi, a former Commissioner of Police, and businessmen Madataly P Manji, P K Jani and E Bristow.

Njonjo and Kiereini today are directors of Heritage AII Insurance, the highest rated insurer in Kenya, although during the Moi presidency, Mr Joshua Kulei, Moi’s aide, is also a director.

Today Heritage is the second largest non-life insurance underwriter after Kenindia. It is also the second largest underwriter of life-business after Ndegwa’s ICEA.

The most interesting turnaround in the last few months is how Heritage, now managed by P K Jani, acquired Alico’s life business worth Sh6 billion and renamed it AIG. Elsewhere, the directors have ploughed their money into three insurance companies: Heritage Tanzania Limited, Strategies Insurance Tanzania Limited and Allianz Tanzania Limited.


Charles Njonjo
Exits Njonjo, enters another Kenyatta era magnate, Mr Joe Wanjui, who is also an insider in the Kibaki government. Wanjui, a former chairman of the giant East Africa Industries and now Chancellor of University of Nairobi is a director of UAP Provincial Insurance, one of the largest insurance companies in Kenya that he owns together with business magnate Chris Kirubi.

Before the Wanjui group took a controlling stake in the company in February 2001, UAP, an acronym for Union Des Assurance des Paris, was 60 per cent owned by AXA Insurance UK Plc and had a total asset base of Sh1.9 billion.

Kirubi got into the picture in 2001 after Acacia Fund, the first venture capital fund licensed by the government, bought 20 per cent shares in UAP. The company has recently moved to the Ugandan market where it last October acquired a majority stake in the country’s United Assurance Company.

Another company that has had links with the political elite is First Assurance Company, which is headed by Mirabeau H. Dagama Rose, who is also the chairman of Commercial Bank of Africa (CBA) where the Kenyatta family has a stake. Muhoho Kenyatta sits on the board of CBA but there is no evidence that CBA has links to First Assurance.

Kenya’s Vice President, Mr Moody Awori, has an interest in the Mercantile Life and General Assurance, which is a subsidiary company of the East African Building Society (EABS) Group which was founded in 1959 by the late Lallit Pandit with Sh5,000. Awori is a director of EABS, an association that started some 43 years ago, when EABS — read Pandit — lent Awori Sh25,000 to purchase a house in Lavington where the vice-president still lives.

Another of Kibaki’s insiders who is in the insurance business is Eddie Njoroge, the Managing Director of KenGen, and Sam Kamau. They have shares in Royal Insurance.

Cabinet minister Njenga Karume owns Pelican Insurance, although he is said to have little interest in its running often concentrating on the beer business while his colleague, Mr Njeru Ndwiga, has interests in Secular Insurance which was recently in the news after it won tenders in firms under his ministry.

The Aga Khan is also in Kenya’s business circles through the Jubilee Insurance, one of the oldest having opened doors in 1937 and which has of late expanded to Mauritius, Tanzania and Uganda.

With an authorised capital of Sh180 million, Jubilee Insurance has the highest shareholders’ funds in the Kenyan insurance industry and is quoted on the NSE. But the majority of the shares are owned by the Aga Khan Fund for Economic Development (AKFED).

One time Alego-Usonga aspirant Edwin Yinda owns Liaison Insurance Brokers situated at State House Road’s Liaison Centre. Yinda is married to former Coast Provincial Commissioner Eliud Mahihu’s daughter, the former Sally Mahihu, and is a well-known Kanu activist in Nyanza.

Pius Ngugi of Thika Coffee Mills is a major shareholder in Kenya Alliance although a Mr Bill Martin holds a few shares.

Another major player in the sector is Nyeri-born Ashok Shah, the former chairman of the Association of Kenya Assurers who has a stake in APA Insurance together with a long-time Charles Nyachae ally, Mr John P. N. Simba, who is chairman.

Simba is today the chairman of the Nairobi University Governing Council. Last year, APA announced a pre-tax profit of Sh44 million.


The ICEA building which belongs to Insurance Company of East Africa

The company was formed following a merger between Pan Africa Insurance and Apollo Insurance companies. Simba is a former non-executive chairman of the National Bank of Kenya.

Business magnate Chris Kirubi has interests in AON Minet through the shares he owns at ICDC, where 15.66 per cent of ICDCI shares are registered under his name, another 6.02 per cent under Kiruma International and 5.47 per cent under International House Limited associated with him. He also sits on the board of UAP Insurance with Joe Wanjui.

Bethwel Mareka (BM) Gechaga is also a well-known businessman of the Kenyatta era. A former chairman of BAT (Kenya) Limited, Gechaga is today associated with Gateway Insurance Company.

Another tycoon in the industry is Stanley Munga Githunguri, the former chairman of National Bank of Kenya who today runs Geminia Insurance Company.

A multi-millionaire, Githunguri is the owner of Nairobi’s Lillian Towers and has twice tried his hand at the Kiambaa seat on a Kanu ticket. Another ex-banker with interest in the insurance is Ahmed Abdalla, who is the chairman of Corporate Insurance Company.

Abdalla sits on the board of Transparency International Kenya Chapter and is a former Executive Chairman of the Kenya Commercial Bank, an Executive Director of the International Monetary Fund and one time Deputy Governor of the Central Bank of Kenya.

Former Coast PC Eliud Mahihu owns Madison Insurance. White Corporate Insurance was initially owned by the late businessman Mohammed Aslam and Prof George Saitoti was believed to own shares in the company.

Jimna Mbaru, a pioneer African stock trader and former chairman of the Nairobi Stock Exchange, today runs Occidental Insurance of which he is the chairman.

Mbaru, who vied for the Starehe seat on a Safina ticket in 2001, is the brains behind Dyer and Blair Investment Bank.

Boma Insurance is associated with a brother to the Director General of National Security Intelligence Service, Wilson Boinett.

Boma was in the news last year when it appealed during the tendering of insurance to the Kenya Police Airwing forcing the Office of the President to re-tender.

Although Mathira Kanu aspirant Peter Kuguru used to have an interest in Invesco Insurance, he has since sold his shares.

In the company that had insured City Hall before one of the wings burnt down in 2002.

In Parliament, P G Muriithi, the Nyeri Town MP, is associated with Consolidated Insurance and is said to have done roaring business during the Kanu days.

Another company that performed well was Kabage and Mwirigi, which is associated with Karanja Kabage.

Kabage is also the chairman of First Reinsurance Brokers and is remembered for leading a consortium of entrepreneurs who bought Stagecoach Bus Company in 1999 together with former Kenya Power and Lighting Company chief executive Samuel Gichuru and Mr Stanley Murage, a former PS for Transport and Telecommunications who is now the policy adviser to President Kibaki.

Another Kanu supporter with an interest in Insurance is Paul Gogo, who runs Sifa Insurance Brokers on Nairobi’s Lenana Road.

Kisii politician Leo Matundura runs Lema Insurance Brokers and was a 1997 runner-up in the Kitutu-Chache by-election on a Ford Kenya ticket.

Rumaku insurance Brokers is run by Ruth Kulundu, a relative of Cabinet minister Dr Newton Kulundu, while Prime Mover Insurance Brokers is headed by Titus Ngahu, an NAK activist and former Kenyatta University student leader. It is believed to be associated with key personalities in the Mt Kenya region.

Although June Moi used to run two companies during her father’s presidency, they have since closed shop. The two are Liberty Insurance and Simba Insurance.

Other high profiled companies that have closed shop include Ajay Shah’s Access Insurance and Lake Star Insurance associated with politician and former nominated MP, Ezekiel Barngetuny.

And the list is far from exhaustive. With only 212 licensed insurance brokers last year, and 34 insurance companies in Kenya, the control of this lucrative sector is, however, left to those who have muscle in and outside the corridors of power.

BARONS OF POWER

Excess of Loss Reinsurance Contracts: LOD or RAD Basis?

Losses Occurring During

LOD (Losses Occurring During) basis, does exactly what it says and states that the contract will respond to any losses that occur within the contract period. In property insurance (per-risk and catastrophe covers) it is quite straightforward, because the losses generally start at a precise time.

There are a few minor provisos, such as losses that start just before the contract expires and continue beyond expiry, or losses that last several days and may be divided into several distinct events for recovery purposes. Those are quite easily dealt with by appropriate conditions in the contract wording.

LOD in Liability contracts can be a little more tricky, because some losses cannot be attributed to a sudden event. A good example is seen in Employers’ Liability, where an employee could suffer a work-related illness as a result of long-term exposure to hazardous substances or working practices. Again, appropriate clauses are written into the reinsurance contract and I hope to deal with these in later blogs.

Risks Attaching During

RAD (Risks Attaching During) contracts will cover all policies that incept during the contract period, irrespective of when the losses occur. Depending on how the original policies are worded, the losses could emerge several years after the policy itself has expired.

let’s discuss the relative merits and drawbacks of each basis.

Starting with LOD:

• Single premium adjustment at year end, usually based on accounted GNPI for period makes for simple accounting
• No automatic run-off cover is provided when the contract is non-renewed, unless specially negotiated
• Less risk of reinsurer default. If a reinsurer goes into liquidation after the contract has expired, there is no possibility of further losses occurring under the contract. The panel of reinsurers can be changed annually and the effect of the change is immediate with no “tail”
• Invoking a reinsurer downgrade clause during the contract period can be effective (pro-rata return of premium) as the contract is only exposed to losses occurring within a defined period

RAD contracts:

• Original premium income will be accounted over 2 or more years, so contract premium may be readjusted several times. If there are reinstatement premiums, these may also need to be adjusted to reflect the evolving contract premium
• Run-off cover is not an issue here. If the reinsured stops writing the class of business and the contract is not renewed, it will continue to cover the policies until all liability has ceased
• Invoking a Downgrade Clause is not as effective. If the reinsurer is downgraded after the contract has expired, there is no point in invoking the clause, because there will be no premium refund, but liability will continue.

Original post by Keith Riley

Key Highlights From The Communications Authority Of Kenya Q3 Quarterly Sector Statistics Report

Kenya now has 31.8 million mobile subscribers, up from 31.3 million
mobile subscribers the previous quarter. This means that mobile
penetration in Kenya now stands at an all time high of 78.2% as of
March 2014.
Safaricom is the largest mobile network in Kenya with 67.8% market
share as a result of having 21,248,287 mobile subscribers. Airtel is
the second largest mobile network in Kenya with 16.5% market share as
a result of having 5,156,269 mobile subscribers. YU is the third
largest mobile network in Kenya with 8% market share as a result of
having 2,649,362 mobile subscribers. Orange (Telkom Kenya) is the
fourth largest mobile network in Kenya with % market share as a result
of having 2,255,099 mobile subscribers.
Mobile money subscriptions in Kenya now stand at an impressive 26.2
million subscribers, up from 26 million subscribers in the previous
quarter,.
Kenya now also has 103,660 mobile money agents countrywide which is an
increase of 10.6% from the previous quarter.
SMS traffic declined to 6.22 billion messages from 6.28 billion in the
previous quarter. Could this be as a result of the rise of mobile
messaging apps like WhatsApp? I see this trend continuing based on how
many people have opted out of SMS for free Internet-based mobile
messaging services.
Voice traffic dropped from 7.8 to 7.6 billion minutes between the two
quarters. In addition, average voice minutes used per subscriber also
fell from 84.1 minutes to 80.3 minutes.
Fixed lines declined 205,856 lines to 204,354 from the previous
quarter. Do people still use these? I rarely ever call landlines these
days unless I have to.
Internet subscriptions grew by 200,000 from 13.1 million subscribers
to 13.3 million showing the robust uptake of data services in Kenya
driven largely around mobile which represents 99% of Internet usage.
However DSL and fibre optic subscriptions grew by 4.4% and 2.8% per
cent respectively.
The number of Internet users increased to 21.6 million compared to
21.2 million during the last quarter. This means that Internet
penetration in Kenya now stands at 53.3% up from 52.3% the previous
quarter. This is a stunning level of uptake whichever way you look at
it. Kenya is mobile-first and increasingly Internet-first too!
Broadband Internet penetration in Kenya now stands at 1.44 million
compared to 1.41 million the previous quarter. This means that the
majority of Internet users in Kenya are still on slower Internet
connections and broadband uptake is still a work in progress.
International Internet bandwidth increased to 865,714Mbps up from
862,473.9Mbps. However, used international bandwidth grew
substantially by 22.3% to stand at 447,064 Mbps up from 365,413 Mbps
recorded in the last quarter. Total used capacity represented 51.6%
compared to last quarter's 42.4%.
.KE domain names grew by an impressive 9.1% to stand at 33,381 .KE
domain names up from 30,585 .KE domain names.

via Moses Kemibaro

 Many Thanks to Alykhan Satchu

Investors Embrace Catastrophe Bonds

Insurers Capitalize on Surge of Interest in Bonds Linked to Natural Disasters

Insurance companies are taking advantage of the appetite for high-yielding debt by selling bonds that can force investors to help pay for the cost of natural disasters.

With the U.S. hurricane season about a month away, insurers are issuing "catastrophe bonds" at the fastest clip since before the financial crisis. Insurers sell the bonds to help cover potential claims from hurricanes, tornadoes, earthquakes and other major insured risks. While losses on so-called cat bonds have been rare over the years, investors can forfeit both interest payments and their principal if disaster costs exceed designated levels, which gives insurers the right to tap the funds. The bonds have floating interest rates and are usually paid off upon maturity in three or four years.

Cat-bond issuance in the first quarter more than doubled from the year-earlier period, to $1.2 billion, and second-quarter issuance is expected to hit an all-time high above $3.5 billion, according to Willis Capital Markets & Advisory. More than $2 billion of deals have closed or been announced this quarter, Willis said.

Citizens Property Insurance Corp., the state-run insurer in Florida, this week boosted its latest cat-bond offering to at least $1.25 billion from $400 million, according to investors. It would be the largest single cat-bond transaction ever, according to Artemis, an insurance-linked data provider.

Yields on cat bonds, meanwhile, have sunk to their lowest level in nine years. The average quarterly yield dipped to 5.22% recently, from 9.61% in 2012.

Cat bonds historically have appealed to large pension funds but now are attracting a wider array of buyers, yield-hungry investors who otherwise might purchase corporate junk bonds, according to brokers, bankers and investors.

"Institutions of smaller and smaller size are becoming interested in the market," said Brett Houghton, a managing principal at Connecticut-based Fermat Capital Management LLC, a long-standing specialist in catastrophe bonds, with $4.4 billion under management.

Many insurers that sell coverage for homes and businesses seek to spread the cost of potential claims by buying "reinsurance" from other companies. Insurers have used cat bonds since the mid-1990s to augment their reinsurance arrangements, and many now are boosting their use of the market as costs of issuing debt have fallen.

 

Cat-bond issuance jumped to $7.1 billion last year, just shy of the record $7.2 billion in 2007, according to Willis, an investment-banking unit of insurance broker Willis Group Holdings WSH -2.90% PLC. About $20.3 billion of the bonds were outstanding at the end of 2013, the most ever, according to Swiss Re Capital Markets. About $300 billion of catastrophe-reinsurance coverage is in place world-wide, including cat bonds, according to Aon Benfield, the reinsurance broker of Aon PLC.

The Swiss Re Global Cat Bond Total Return Index, which tracks the price change and interest payments of all property natural-catastrophe bonds outstanding, returned 8.51% on an annual basis between 2002 and last week. By comparison, Barclays's U.S. Corporate High Yield and U.S. Aggregate Bond indexes have increased, respectively, 9.35% and 5.04% annually.

The drop in bond yields has forced many reinsurers to lower their prices. But one big loss could rattle the cat-bond market, giving reinsurers the ability to raise rates again, said Tony Ursano, chief executive at Willis Capital Markets.

Losses, though rare, can be significant. Buyers of one bond that provided payouts for claims tied to the giant earthquake off the coast of Japan in 2011 lost all their money. Cat bonds are linked to specific types of disasters and are issued on the condition proceeds won't be used by the insurer for claims payments until the insurer's claim costs top a set level. Natural disasters have saddled cat bonds with $682 million in losses since 1996, or 1.3% of the $51 billion issued, according to Lane Financial LLC, an insurance consulting firm.

Superstorm Sandy damaged homes on the New Jersey coast in 2012. Buyers of catastrophe bonds can lose principal if costly disasters strike. Associated Press

Yields on cat bonds typically rise after natural disasters, reflecting lower bond prices and higher coupons on newer issues seeking to attract buyers. After Hurricane Katrina, which caused $47.4 billion in insured losses in 2012 dollars, yields rose 147% through the next four quarters, according to Lane Financial.

Cat bonds have become especially popular as an alternative to reinsurance policies in hurricane-prone Florida. With no hurricane landing there since 2005, interest payments on the debt have been uninterrupted, and principal on bonds that haven't matured has gone untouched.

Trevor Hillier, vice president of finance and accounting at American Strategic Insurance Corp., based in St. Petersburg, Fla., said the current low rates led the insurer to use cat bonds to cover named U.S. storms and severe thunderstorms, after rejecting the idea twice in previous years. In March, an ASI affiliate called Gator Re issued $200 million in cat bonds to provide reinsurance to ASI, boosting the size from $125 million and lowering yields from an expected 7%-7.75% to 6.5%.

In California, where earthquakes shook Orange County last month, the growth of the cat-bond market has been "really game-changing," said Glenn Pomeroy, chief executive of the California Earthquake Authority, a publicly managed, privately funded quake insurer that has sponsored three cat-bond offerings since 2011. The "tremendous amount" of new money flowing into cat bonds has increased price competition with reinsurers, he said.

Everglades Re, the affiliate used by Citizens Property, likely will sell its issue at a yield close to 7.5%, a yield reflecting both the particular risks faced by the bond buyers and the deal's unusually large size, a person close to the deal said. It is being managed by Citigroup Inc. and Bank of America Merrill Lynch. A Citizens spokesman declined to comment.

Some say the increased demand for cat bonds reflects dangerous complacency on the part of investors who have driven the bonds' prices to unreasonable heights.

"The absence of a catastrophic event over a long period of time" has helped feed demand for the securities, said Al Selius, a portfolio manager at Pine River Capital Management LP, which has about $125 million in insurance-linked securities. "It doesn't seem to be the right time" to expand Pine River's position, even as the bonds remain attractive relative to other debt, he said.

Write to Al Yoon at albert.yoon@wsj.com and Leslie Scism at leslie.scism@wsj.com
 http://online.wsj.com/news/articles/SB10001424052702304049904579517710350913016