Insurers now face capital deadline amid rising losses

Central Bank of Kenya. FILE PHOTO | NMG

By OTIATO GUGUYU
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Summary

• The capital injection deadline was due mid this year.
• However the Treasury gave insurance firms six additional months to comply as a support measure during the pandemic.
• The new risk-based regime is expected to increase current standard capital of Sh300 million for general business to Sh600 million or 20 percent of the net-earned premiums of the preceding financial year, whichever is higher.

Insurance firms deadline to inject billions of shillings of capital expired December, 31 in a year the industry posted losses due to increased claims, cancelled policies and low premiums as a result of the coronavirus pandemic.

The capital injection deadline was due mid this year. However the Treasury gave insurance firms six additional months to comply as a support measure during the pandemic.

At the time the Insurance Regulatory Authority (IRA) disclosed that 20 firms, a third of Kenya's 56 licensed insurance companies, are not compliant with capital requirements.

The new risk-based regime is expected to increase current standard capital of Sh300 million for general business to Sh600 million or 20 percent of the net-earned premiums of the preceding financial year, whichever is higher.

Long-term business (life) insurers currently setting aside Sh150 million will raise their capital to Sh400 million, or five percent of the liabilities of the business for the financial year, whichever is higher, while a composite underwater will have to shore up capital to Sh1 billion.

This comes at a time insurance companies suffered a Sh1.1 billion loss in the first quarter of this year as stock prices plunged and costs of meeting claims rose sharply.

“The insurers incurred a loss of Sh1.1. billion in the first quarter of 2020 on account of increased expenses. In addition, there was significant reduction in investment income due to volatility at the NSE...In the outlook, we expect most of the key indicators for the industry to deteriorate in 2020 owing to the effects of the COVID-19 pandemic,” Central Bank of Kenya (CBK) said in the Financial Stability report.

The 56 insurers and five re-insurers paid Sh15.3 billion in claims pushing them into losses. A Sh1.4 billion from investment income from stocks and government securities failed to support the industry business.

According to the CBK Financial stability report, the loss which came just before the impact of the coronavirus pandemic will push the industry further into trouble.

CBK said government measures to contain the virus in particular; travel restrictions and movement restrictions have a significant impact on aviation, marine and travel insurance businesses.

The rising cases of Covid-19 cases may lead to increased hospitalisations in which is likely to put heavy financial strain on insurance companies offering medical cover.