Insurers should comply with capitalisation rules, the Insurance Regulatory Authority has said. The IRA's insistence raises prospects of further consolidation in the largely underperforming industry.
The regulator yesterday said about 10 per cent of the insurers have not started building their capital base despite the June 2016 deadline for doing so having lapsed. This followed the amendment to Kenya’s Insurance Act last year.
The reviewed law requires short-term (general) insurers to increase their capital from Sh300 million to Sh600 million by 2018. Firms in long-term business (largely life assurance) should increase theirs from Sh150 million to Sh400 million.
Insurers are also required to place 40 per cent of the value of their property investments and 30 per cent of stock holdings with the IRA.
“There have been complains that the law is punitive, but we have done our checks and we are sure the rules are not harmful at all. The insurance companies have no choice but to comply,” said IRA chief technical manager Agnes Ndirangu yesterday in an interview on the sidelines of the Actuarial Society of Kenya convention in Nairobi.
The Association of Kenya Insurers has spent the better part of this year lobbying IRA to delay the implementation of the capital rules, to give insurers a chance to restructure balance sheets and to expand business.
The AKI argues that implementing the rules will be punitive to insurers in the short term.
“If you have heavily invested in property, for example, land and buildings, these are not things you can sell off tomorrow. We are telling them (IRA) that ‘some of these capital charges you have proposed are punitive'," said AKI chief executive Tom Gichuhi at a recent event.
Consolidation is part of a risk supervision regime adopted by the IRA ahead of a planned regulatory overhaul that includes establishing a Financial Services Authority to consolidate the fragmented insurance landscape.
The FSA will merge four regulators – the IRA, the Retirement Benefits Authority, the Capital Markets Authority and the Sacco Societies Regulatory Authority – under one umbrella to provide a more organised approach to the sector.
A 2016 report by consultancy firm EY suggests consolidation will help Kenya’s insurance sector to expand by a compounded six per cent annually in premiums through to 2018.
Insurance penetration in the country remains low at 2.9 per cent of the national wealth, technically referred to as gross domestic product.
EY said Kenya’s life insurance segment, in particular, represents a significant growth opportunity.