Tough capital rules good for insurance sector, says regulator

Insurance Regulatory Authority CEO Sammy Makove at a past event. FILE PHOTO | DIANA NGILA |  NATION MEDIA GROUP

In Summary

• “We want to see local insurance brands, which are strong and able to match any international standards,” he said.
• Mr Makove noted that with an average growth of 20 per cent per annum, Kenya’s insurance sector, which has a penetration rate of about 3 per cent, continues to attract foreign firms seeking to enter the local market.
• General insurance underwriters have less than three years to increase their capital to Sh600 million from Sh400 million, while those undertaking long term underwriting business are to raise their minimum capital to Sh400 million from Sh200 million.

By JOSHUA MASINDE
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Higher capital requirements in the insurance sector will enable local players compete for major deals with foreign multinationals, the regulator has said.

The Insurance Regulatory Authority (IRA) chief executive officer, Sammy Makove said that the authority wants firms with strong capital base to take on their foreign counterparts.

“We want to see local insurance brands, which are strong and able to match any international standards,” he said.

During the reading of the 2015/16 budget on June 11, National Treasury Cabinet Secretary, Henry Rotich proposed that insurers increase their minimum capital levels, a move meant to support the growth of the sector and guard the industry against potential financial instability.

READ: Barclays buys major stake in First Assurance

General insurance underwriters have less than three years to increase their capital to Sh600 million from Sh400 million, while those undertaking long term underwriting business are to raise their minimum capital to Sh400 million from Sh200 million.

Analysts have said this directive would spark a wave of mergers and acquisitions in an industry that has seen a number of foreign firms enter Kenya with some local ones expanding in the East and Southern parts of Africa.

ATTRACT FOREIGN INVESTORS

Mr Makove noted that with an average growth of 20 per cent per annum, Kenya’s insurance sector, which has a penetration rate of about 3 per cent, continues to attract foreign firms seeking to enter the local market.

A number of foreign firms that have recently entered the local market through mergers or acquisitions include UK-based Prudential, which bought out Shield Assurance last year.

South Africa’s Old Mutual has bought a controlling stake in UAP, a local insurer, while another South African underwriter, Pan African, concluded the acquisition of a 51 per cent stake in Gateway Insurance this year.

Earlier this month, Barclays Africa Group acquired 63.3 per cent shareholding in First Assurance Company for Sh2.8 billion. The acquisition of First Assurance, which has operations in Kenya and Tanzania, included a Sh722 million capital injection.