DEVELOPMENT OF UNIT LINKED BUSINESS IN KENYA Presentation to The Actuarial Convention 2008 By Abed Mureithi The Actuarial Services Company 27 June 2008

Functions of Insurance Core Insurance functions Risk Management – Charge premiums from a pool of insured to pay for expected claims from few individuals. Must price risk appropriately and reasonably Investment – Receive premiums in advance before paying out claims and maturities – Free float for investment

Unit – Linked Policies Benefits based on the value of units purchased Unit value growth linked to underlying index or asset Relatively recent in Kenya Kenyan context – More appropriate term would be unitised business benefits are guaranteed at a basic sum assured

Key Features Greater flexibility for policyholder on investments Lower or “no” guaranteed benefits Transparency/ more information on benefits Combination of Insurance and Investment Benefits

Challenges in Unit Linked Business Legislative Marketing/ Policy holder Expectations Investments Disclosures

Legislative No specific legislation governing Unit- Linked Business Investment Restrictions Local offshore exposure Admissibility of assets Unclear Reserving Requirements

Marketing/ Policy Holder Expectations Sales Agent Marketing Strategy High Commissions – upto 40% in first year Limited Financial Planning Advice by Sales Agents Low value for money – Low surrender values Uncompetitive vs unit trusts Litigation risk

Administration Miscalculation of Unit Values Poor administration systems Non-disclosure of material information Response delays

Opportunities Banc assurance marketing Britak, Equity Bank Coop Insurance, Coop Bank Jubilee, Diamond Trust Bank ICEA, NIC Bank HIV/ AIDS product Easy adaptation of unit-linked policies to cover HIV/ AIDS related conditions

Opportunities Direct Sales Most profitable but with competitive pricing Tele Sales Focus on Investment REITS Equities Offshore

Conclusion Unit-Linked business relatively new concept Significant Challenges in the Kenyan market Opportunities exist for the future

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