Rwanda’s insurance sector collected Rwf37.2 billion net profits in the fiscal year 2021/22, compared to Rwf32.2 billion of the same period last year. The earnings are from premiums and other interest-generating activities.
According to the National Bank of Rwanda’s (BNR) annual report released Tuesday November 1, the net profit of private insurers recorded moderate growth by increasing to Rwf8 billion in June 2022, up from Rwf7 billion in June, last year, despite risks of under-writing loss associated with high claims.
"The growth of profit is associated with higher increase of revenues consistent with increased investment in earning assets (loans and government securities), increased investment income in insurance companies and improved efficiency gains,” BNR said in the report.
The previous year saw two new insurance companies licensed, including EDENCARE Health Management Organization and Defense Captive Insurance Plc.
According to the breakdown, assets of the insurance sector, representing 9.2 per cent of the total assets of the financial sector, increased by 17.2 per cent mainly supported by the growth of premiums and investment income.
Insurance is basically an industry that, essentially, takes in money and invests that money before subsequently paying claims. with higher investment returns, there’s more profit being generated by the insurance sector, analysts say.
According to the latest report, the solvency margin for the insurance sector stood at 1,347 per cent, particularly recording an increase in the private insurers' solvency ratio.
The solvency ratio is used as an indication of an insurance company's financial strength and its ability to withstand the risks they are exposed to such as falling asset prices or increased liabilities.
Rwanda’s insurance sector, previously considered as nascent, is dominated by public insurers.
For instance, in terms of asset size, the two public insurers; RSSB-Medical and Military Medical Insurance (MMI) remained dominant with an asset size equivalent to 62.2 per cent of total assets and 41.8 per cent of Gross Written Premium (GWP) of the insurance sector respectively.
Meanwhile, private insurers held 37.8 per cent of total assets and 58.2 per cent of GWP.
"Insurers heavily depend on motor and medical insurance products. As at end June 2022, Motor and medical insurance products contributed 63.9 percent of total private insurer’s premiums, reflecting the product concentration risk,” reads part of the report.
But claims in private insurance increased.
By June 2022, private insurers recorded the growth of the claims in value by 16 percent to Rwf30 billion.
"The growth of claims in motor was partially associated with an increase in spare parts price and increased labor cost, all associated with increased inflation. Also the number of road users involved in the accident increased in the same period which also partially explains the increase of claims in motor.”
From a stability point of view, the insurance sector remained adequately capitalized and the liquidity position of private insurers is improving reaching requirements of 100 percent as at end June 2022.
Financial sector stable
Rwanda’s financial sector remained "stable and sound”, with capital adequacy and liquidity remaining above minimum prudential requirements.
According to the outlook, the sector continued to grow, with total assets increasing by 17.5 percent to Rwf8,145 billion in June 2022 from Rwf6,933 billion in June 2021.
"This growth was mainly attributed to an increase in deposits of lending institutions, capital, and more contributions of pension and investment income,” the lender said in its report.
Also relatively stable is the Rwandan franc, despite the volatilities experienced on the international market.
BNR says it recorded a surplus before unrealized gains of Rwf56.0 billion from Rwf50.7 billion earned in the previous financial year.
"Although we are not certain about the challenges that lie ahead, I am confident that we are well-equipped to tackle them head-on to keep our economy and financial sector strong and sound,” John Rwangombwa, BNR Governor, notes in the report.