Bank of Kigali has shelved plans to venture into life insurance amid dimming growth prospects in the country’s insurance business.

Diana Karusisi CEO of Bank of Kigali said the board is now focused on re-capitalising the bank and strengthening its insurance subsidiary—BK General Insurance.

“The priority is now to raise capital for the business,” said Ms Karusisi, a major shift from the March 23, announcement that the bank would be diversifying into life insurance.

The bank’s shareholders will vote on the issue of raising $100 million on May 18.

Analysts say the bank’s board feared risking shareholders’ money by investing in the private life insurance business as three out of the four players in the sector are struggling to stay in business.

The country has 14 insurance companies, four life insurance players and 10 general insurance traders.

Challenging business environment

Soras General Insurance and Soras Life Insurance dominated the industry’s profits in 2017. It is estimated that Soras General reported Rwf2.5 billion ($2.9 million) profit while Soras Life posted Rwf600 million ($701,909). The two sister companies are all subsidiaries of South African financial services Sanlam group.

However, industry experts say Soras’ profits are not generated from underwriting, but from other businesses like real estate and other asset classes, which underscores the challenging business environment in Rwanda.

Data from the National Bank of Rwanda shows the 14 private insurers reported a combined profit of Rwf3.3 billion ($3.8 million) between January-December 2017 from negative Rwf4.7 billion ($5.5 million) in 2016.

The insurers say compensations for motor vehicle accident victims have remained high compared with other East African countries. This is largely because Rwanda has unlimited liabilities while Uganda and Kenya have caps.

Despite the challengingbusiness environment BK General Insurance posted profits giving the board hope that even the life insurance sector will become profitable given the high profile client the bank serves.

Expansion

According to Alex Bahizi, CEO BK General Insurance, the firm recorded Rwf264 million ($309,086) net profit at the end of December 31, 2017, amid huge industrial losses in motor vehicle underwriting business last year.

He added that Bank of Kigali remains open to expand its insurance business through a green field licence or acquisition of an existing player.

Industry players say Rwanda Social Security Board (RSSB) is likely to invite a strategic investor in Sonarwa General Insurance and Sonarwa Life Insurance after turning it around to profitability.

After National Bank of Rwanda suspended issuing of new insurance licences in February 2017, the only way for Bank of Kigali to venture into life insurance is by either buying a stake in Sonarwa or taking over the entire business. RSSB is the second biggest shareholder in Bank of Kigali.

However, Sonarwa Insurance faces a challenge in attracting investors because it has been rundown and its assets keep deteriorated. Its liabilities are estimated at Rwf10 billion.

Gregory Minani, CEO of Prime Life Insurance said life insurance remains difficult to sell in Rwanda partly because of the economy and small middle class.