Corporate News
Commissioner of Insurance Sammy Makove addresses stakeholders at a past
meeting in Nairobi. Insurance uptake in Kenya is low. PHOTO | ANN KAMONI
| NATION
By VICTOR JUMA
In Summary
- The upcoming requirements mean insurers may be forced to reduce their dividend payouts if such distributions will weaken their financial position, even temporarily.
- The proposed law is part of overall stricter measures to “promote the maintenance of a safe, sound, efficient, fair and stable insurance market.”
Payment of dividend by insurance firms will be tied
to companies’ long-term financial health, according to a new Bill that
if passed could see investors re-evaluate their expected returns on
listed counters.
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The draft Insurance Bill 2014 says the underwriters will
need to comply with the set capital adequacy levels before and
immediately following distribution of benefits, such as dividends to
shareholders.
The Bill, which also takes into account the
introduction of a Financial Services Authority (FSA) to police the
industry, is intended to prioritise interests of policy holders above
those of owners.
“A licensed insurer shall not make a distribution
unless, immediately after the distribution, the insurer complies with
(capital requirements and sound financial management),” reads the Bill.
Nairobi Securities Exchange-listed insurance firms include Britam, CIC, Jubilee, Kenya Re, Liberty Kenya Holdings and Pan Africa.
The current law does not attach such conditionality
to the payment of dividends. The upcoming requirements mean insurers
may be forced to reduce their dividend payouts if such distributions
will weaken their financial position, even temporarily.
A number of large insurance companies pay less than
half of their net profit as dividends, retaining the bulk of their
earnings to fund growth.
The upcoming regulatory demands could further
reduce the percentage of profits paid out as dividend, with the Bill
also seeking to raise capital levels above the current minimum
requirements.
The proposed law is part of overall stricter
measures to “promote the maintenance of a safe, sound, efficient, fair
and stable insurance market.”
Massive losses
It is aimed at boosting the public’s confidence in
insurers by protecting the interests of current and prospective
insurance policyholders and their beneficiaries who have suffered
massive losses from the collapse of several underwriters in the past.
These include Blue Shield Insurance, Kenya National
Assurance, Liberty Insurance, Stallion Insurance, United Insurance and
Lake Star Insurance.
The current regulator, the Insurance Regulatory
Authority (IRA), says the failures were brought about by mismanagement,
fraud, non-compliance with the law, incompetence, economic downturns and
re-insurance failures.
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