Insurance companies in race to meet new capital rules

Mr Nelson Kuria, former CIC Insurance CEO. He says Kenya should go the Nigeria way where the number of insurers dropped from 100 to about 50. PHOTO | FILE 

By GEOFFREY IRUNGU, girungu@ke.nationmedia.com

In Summary

• Over 10 insurance firms are locked in a race to raise a total of nearly Sh3 billion or seek mergers in the next 24 months.
• Under the new law, general insurance companies are required to have at least Sh600 million as capital while life insurers must be capitalized to the tune of Sh400 million.
• A company combining both life and general businesses (composite insurers) must raise its level of capitalization to at least Sh1 billion.

At least 10 insurance companies are locked in a race to raise a total of nearly Sh3 billion or seek mergers in the next 24 months to meet the industry’s new capital requirements.

The list of companies that will have to raise new capital or seek mergers based on their December 2015 financial results are Metropolitan Cannon, which had Sh65 million in shareholder funds and Resolution Insurance with Sh199 million.

While Metropolitan will seek nearly 10 times its current capital, Resolution will need three times its present level of shareholder funds.

Under the new law, general insurance companies are required to have at least Sh600 million as capital while life insurers must be capitalized to the tune of Sh400 million.

A company combining both life and general businesses (composite insurers) must raise its level of capitalization to at least Sh1 billion.

Though most of the insurers said their capital raising plans were ongoing, industry experts said mergers offered the industry the best way to reform and long- term strength.

“We have no choice but to have mergers in order to make the industry stronger. It is no use having small companies that cannot do big deals, giving way to foreigners to monopolise big contracts,” said Nelson Kuria, who retired as CEO of CIC Insurance a few years ago.

Mr Kuria said Kenya should go the Nigeria way where the number of insurers dropped from 100 to about 50 , which are well-capitalised and able to undertake big transactions, including looking for business abroad.

The list of companies that must raise new capital or find merger partners includes Monarch, a composite underwriter, with Sh785 million – short of Sh275 million.

The company was capitalized to the tune of Sh344 million and Sh440 million for life and general insurance respectively by the close of last year.

READ: Mergers seen rising in insurance sector

Saham Assurance had Sh155 million in shareholder funds devoted to life insurance and Sh463 million for general insurance, meaning that it was short of the new thresholds by Sh245 million and Sh137 million, respectively.

The company had total capital of Sh617 million, well below the Sh1 billion needed for a composite insurer – meaning it needs an extra Sh383 million to be in compliance.

Capex Life Assurance had Sh242 million as capital as at the end of last December, but it will now be required to have at least Sh400 million. That means it must raise the remaining Sh158 million in two years’ time.

So far, general insurance businesses are required to have capital of Sh300 million, but now this has been doubled as part of the new rules. Companies that carry more risk must however hold capital commensurate with it