- Insurance industry in talks with regulator to lighten load
- Risk-based laws will double capital requirements by 2018
A push by Kenyan regulators to clean up the East African country’s insurance industry is poised to trigger stake sales or exits by underwriters unable to meet the new capital requirements, according to an industry group.
Most companies missed a June deadline to start building capital levels over the next three years, leaving many of them stuck with having to find investors to raise cash or to sell their companies completely, Association of Kenya Insurers Executive Director Tom Gichohi said. While most of the nation’s biggest insurers and foreign operators will be able to meet the requirements, the majority of underwriters are family owned, he said.
After failing to convince regulators to delay by two years rules that will as much as double the capital they need to set aside by 2018, insurers are also facing other changes. The organization is now lobbying the Insurance Regulatory Authority to lower so-called capital charges, which will force companies to park 40 percent of the value of their property investments and 30 percent of their stock holdings with the regulator.
“If you have heavily invested in property, for example land and buildings, these are not things you can sell off tomorrow,” Gichohi said in an interview in Nairobi, the capital. “We are telling them that ‘some of these capital charges you have proposed are punitive.’”
Kenya has 49 insurers, five re-insurers and almost 200 brokers in a country where about 3 percent of the population has cover. Premium income increased by 10 percent in the first quarter to 55.3 billion shillings ($545 million), according to the Insurance Regulatory Authority. The regulator didn’t respond to four e-mailed requests as well as text messages and several phone calls seeking comment.
Insurance stocks have followed the decline in Kenyan equities over the past 12 months. Britam Holdings Ltd., the nation’s largest, fell 2.5 percent by 12:27 p.m. in Nairobi on Friday, extending losses over the past 12 months to 21 percent. CIC Insurance Group Ltd. slipped 2.2 percent for a 39 percent drop over the past year.
There have already been deals, while Liberty Kenya Holdings Ltd., a unit of Africa’s largest bank by assets, said it’s considering as many as 10 targets as part of a strategy to boost its foothold in Kenya.
Old Mutual Plc, the London-listed insurer, bought control of UAP Insurance Kenya Ltd. last year, combining it with its local operations. Sanlam Ltd.’s Pan Africa Insurance earlier this year boosted its stake in Gateway Insurance to 56 percent and London-based Prudential Plc bought Shield Assurance Co. in 2014, the same year Swiss Re AG took a minority stake in Apollo Investments Ltd.
Amendments to the Kenya Insurance Act last year mean that short-term insurers need to hold 600 million shillings in paid-up capital by 2018, from 300 million shillings previously, while long-term insurers need to set aside 400 million shillings from a prior level of 150 million shillings.
The regulator can also force companies to boost capital levels to as much as 20 percent of net-earned premiums from the previous year based on the authority’s own assessment of risk the company is exposed to.
While insurers welcome efforts from the regulator to move toward risk-based supervision and improve oversight, timelines are too tight and some steps too far, Gichohi said.
Another area of concern for insurers is shorter deadlines to settle claims, which have been reduced to 30 days from 90 days, potentially eroding their capital base, Gichohi said.
“It’s impossible to investigate and settle claims in 30 days," said Steve Okello, a partner at PricewaterhouseCoopers LLP in Kenya. Companies struggle to get premiums from clients and the new rules will force companies to change systems as well as the way they deal with tax and accounting issues, he said.