Commissioner of Insuarance Godfrey Kiptum. Firms have up to December to comply. FILE PHOTO | NMG
A third of insurance companies in Kenya failed to comply with capital requirements introduced in July prompting the regulator to extend the deadline by six months.
Twenty insurance companies or 35 percent of 56 licensed businesses now have up to December to pump money into their business to shore up capital or lose their operating licences.
The Insurance Regulatory Authority (IRA) said they conducted a review mid this year on companies that met new requirements on capital and found that the 20 firms were short of cash.
The new requirement meant to reduce cases where companies are unable to pay claims, has increased 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 who had been setting aside Sh150 million were required to 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.
Due to the coronavirus pandemic that has reduced premiums collection and increased claims, the regulator and the National Treasury decided to give the underwriters additional time to come up with more capital or seek mergers and consolidation of their business.
“We gave them six months. We are hopping come December, they will meet the capital adequacy requirements,” Commissioner of Insurance Godfrey Kiptum said on Friday during the release of 2019 industry results.
The regulator has been pushing for the introduction of risk based system so that companies can be robust in measuring risk they take on and making payments on time.
Mr Kiptum said there is a lot of undercutting in the market which has seen insurance firms take on huge risks when they lack capacity to settle claims whenever they occur.
However industry players have previously lobbied to have it pushed saying they needed more time to restructure their balance sheets
The risk-based regime, was earlier set to kick in from July 2017, was pushed back for three years through a miscellaneous amendment to Insurance Act in May 2017.