How Standard Assurance was brought to its knees

Directors, senior executives and insurance brokers were behind the near collapse of Standard Assurance Kenya Limited by failing to remit hundreds of millions of shillings owed to the firm.

This is the preliminary verdict of RSM Ashvir, the statutory manager, tapped by the insurance regulator to work out a turnaround or liquidation of the troubled insurance firm in a report filed in the High Court last month.

The report attached to a court ruling, which extends the mandate of the statutory manager for three months, offers the most vivid picture to date on the details that led to the near collapse of the Insurance firm.

Standard Assurance’s problems had previously been blamed on the rising cases of fraud tied to claims among firms that are heavily dependent on the matatu industry.

But the court documents name the firm’s former general manager Elijah Adul, its majority shareholder Wilson Kipkoit and companies associated with him as having borrowed more than Sh103.5 million from the firm in breach of insurance regulations that bar directors and executives from borrowing more than Sh20,000.

“We noted that although the accounts show a petty cash balance, no cash was actually in existence,” say the court documents.

The Sh103.5 million borrowing by insiders at the firm exceeds the Sh100 million the shareholders failed to inject in the firm to keep it afloat, leading to its placement under statutory management.

The court documents show that the brokers and agents of the insurance firm failed to remit premiums worth Sh396.7 million to Standard Assurance Kenya despite having received the monies from the policy holders.

This denied the company the financial muscle it required to fund its operations boost its underwriting profits and create a larger investment fund that could have churned out outsized returns from investments such as property and shares.

The company made an underwriting profit of Sh15 million in 2007 but figures on its performance in 2008 is not available.

“As per our estimate the amount receivable will be 25 per cent of the total amount outstanding, which equates to approximately Sh99.1 million,” says the court documents.

This means that the policy holders would only be compensated for part of the premiums if the firm is revived.

The court details were prompted by an application by the statutory manager for an extension of his tenure beyond the deadline of March 11, 2009, which is a year after being placed under statutory management.

The statutory manager, Mr Ashif Kassam, told the court that due to administrative difficulties, he was unable to complete his mandate.