New rules on capital gives room for more mergers

Regulator rules out delaying implementation of new regime despite request by lobby

Insurance Regulatory Authority CEO Sammy Makove during a press conference on insurance fraud in Nairobi on November 30, 2015. The regulator is projecting increased mergers and acquisitions in Kenya based on higher capital requirements. PHOTO | SALATON NJAU | NATION MEDIA GROUP 

In Summary

• Players rush to comply with the new risk-based capital adequacy demands contained in the amended Insurance Act and, which come into effect in June this year.
• On Monday, the Insurance Regulatory Authority ruled out delaying the new set of tough requirements despite sustained calls for postponement from a sector trade association.

By BRIAN NGUGI
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The insurance regulator is projecting increased mergers and acquisitions in Kenya based on higher capital requirements.

This comes as players rush to comply with the new risk-based capital adequacy demands contained in the amended Insurance Act and, which come into effect in June this year.

Under the system, firms dealing with high-risk businesses will be forced to raise their capital levels to match what they are covering.

On Monday, the Insurance Regulatory Authority (IRA) ruled out delaying the new set of tough requirements despite sustained calls for postponement from a sector trade association.

IRA chief executive Sammy Makove called on insurers to comply. “We are not going to postpone or delay. This is the law and there has to be a compliance approach,” said Mr Makove.

He spoke when the Insurance Regulator signed an MoU with the Competition Authority of Kenya (CAK) on a framework of cooperation between the two agencies.

“We are seeing that this is going to be the trend in the future. We believe that with the introduction of the risk-based capital in the sector, we would expect a lot of movement in terms of capital.

FOREIGN INVESTORS

“This may require companies to acquire others, even foreign investors to move in and inject capital or even a consolidation of our existing insurers,” said Mr Makove.

At the moment, life insurers must maintain a paid-up capital of at least Sh150 million while those underwriting general business must have a minimum paid-up capital of Sh300 million.

Composite insurers must have Sh450 million as the minimum paid-up capital while reinsurers need Sh800 million comprising Sh300 million for life business and Sh500 million for general business.

Ahead of the anticipated realignments, CAK Director General Wangombe Kariuki said the agency is laying the ground work to handle expected additional consolidation requests fuelled by the requirement.

“We continue to receive a lot of enquiries from players and there are so many mergers applications we have dealt with,” said Mr Wangombe.

The rules are expected to take effect mid this year in a phased implementation programme concluding in 2018.