Shakeout looms for Kenyan insurers squeezed by capital rules

Treasury CS Henry Rotich

A push to clean up the insurance industry could trigger stake sales or underwriter exits, according to an industry group.

Most companies missed a June deadline to start building capital levels over the next three years.

This left many of them stuck with having to find investors to raise cash or sell their companies altogether, Association of Kenya Insurers (AKI) Executive Director Tom Gichohi said.

While most of the nation’s biggest insurers and foreign operators will be able to meet the requirements, the majority of underwriters are family-owned, he added.

After failing to convince regulators to delay by two years rules that will as much as double the capital they need to set aside by 2018, insurers are also facing other changes.

The organisation is now lobbying the Insurance Regulatory Authority to lower so-called capital charges, which will force companies to park 40 per cent of the value of their property investments and 30 per cent of their stock holdings with the regulator.

“If you have invested heavily in property, for example land and buildings, these are not things you can sell off tomorrow,” Gichohi said in an interview in Nairobi.

“We are telling them that ‘some of these capital charges you have proposed are punitive’.”

AKI had recently written to the regulator asking for delay of the risk-based supervision regulations which were expected to start taking effect in June.

Insurance Regulatory Authority (IRA) released draft regulations on new capital adequacy requirements late last year following a change of law which ushered in the risk-based capital regime.

Treasury Cabinet secretary Henry Rotich increased minimum capital for general insurance from Sh400 million to Sh600 million and for long-term insurance to Sh400 million in the next three years to June 2018.

This means insurers with low capital bases are unlikely to survive competition, a situation that is likely to trigger mergers and buy-outs. The regulator is only adding to pressure to increase new risk-based capital requirements that will lead to large capital increases, so they can do business insuring the large new infrastructure and other projects.

—Additional reports by agencies