Insurance firms chalk up Sh118bn to meet new rules

Money Markets

From left: Prudential Plc CEO for Africa Matt Lilley, Treasury secretary Henry Rotich and British High Commissioner to Kenya Christian Turner during the media briefing to announce the re-entry of the insurer into the Kenyan market in September. PHOTO | FILE 

By DAVID HERBLING

In Summary

• The proposed RBC model comes after the regulator in 2010 tripled the minimum required paid-up capital for general business to Sh300 million, life insurers (Sh150 million) and Sh450 million for composite (combining both) insurance companies.

Insurance companies bulked up their capital by almost one-fifth in the nine months to September as the industry prepared to adopt a risk-based capital (RBC) regime.

Total shareholder funds in the Kenya insurance industry grew to Sh117.9 billion in September 2014 from Sh100.9 in December last year as underwriting companies prepare for the fresh capital requirements set to be enacted next year.

The impending shift to an RBC model, contained in the Insurance Bill 2014, has forced Kenya’s 48 insurers to seek additional funds from strategic partners and retain earnings to boost capital. The Insurance Regulatory Authority (IRA) attributed the growth in shareholders’ equity to increased deal making such as mergers and acquisitions in the industry over the past year.

“This increase in net worth is attributable to capital injections evidenced in the Kenyan insurance market in the recent past coupled with the rising foreign interest in the market,” said Sammy Makove, IRA chief executive, in an industry update.

“These mergers and acquisitions are indicative of increasing investor confidence in the industry and present a greater growth potential and stability for the insurance industry in Kenya.”

READ: Year in Review: Insurers top list of merger, acquisition deals

The proposed RBC model comes after the regulator in 2010 tripled the minimum required paid-up capital for general business to Sh300 million, life insurers (Sh150 million) and Sh450 million for composite (combining both) insurance companies.

IRA’s strategic plan for the period 2013-2018 sets December 2015 as the effective date for the roll out of the risk-based capital model.

The RBC model will see the regulator ensure insurance firms maintain their capital resources at a level that matches the nature, scale, complexity and risk profile of the business.

“The authority may issue a directive requiring the licensed insurer to increase its paid-up capital…and increase the minimum capital adequacy requirement applicable to a licensed insurer,” reads section 36(1) of the Insurance Bill, which gives IRA powers to set risk-based capital adequacy requirements

The imminent need for additional cash has made local insurance firms a prime target for global financial firms seeking entry into Kenya and the Eastern African region.

“Kenyan insurance industry is amongst the top insurance markets in Africa in terms of attractiveness and growth potential,” said Mr Makove.

Prudential Plc. in September made a return to the Kenyan insurance industry after it wholly acquired Shield Assurance — the life assurance arm of the collapsed Blue Shield Insurance — for an undisclosed fee, saying it plans to invest Sh1.5 billion in the company over the next one year.

Morocco’s Saham Group in April completed a deal where it acquired a 66.7 per cent stake in Mercantile Insurance which was majority owned by the Pandit family. The value of the deal was not publicly disclosed.

Cape Town-based financial services firm Metropolitan International last month completed purchase of a majority stake in Cannon Assurance for Sh2.3 billion (R300 million).