Insurance Regulatory Authority CEO Sammy Makove. PHOTO | SALATON NJAU
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Increased mergers and acquisitions expected as insurers seek to raise capital to comply with legal requirements.
Regulators are projecting increased mergers and acquisitions in the Kenyan insurance sector, driven by the commencement of higher capital requirements this year.
The amended Insurance Act, which comes into effect in June in a phased implementation programme ending in 2018, has adopted a risk-based capital adequacy system that is expected to raise the capital held by some insurers.
The Insurance Regulatory Authority (IRA) and the Competition Authority of Kenya (CAK) say the looming higher capital requirements will lead to mergers and acquisitions as institutions seek to beef up their capital to comply.
“We believe that with the introduction of the risk based capital in the sector we will expect a lot of movement in terms of capital,” said IRA chief executive Sammy Makove.
“This may require companies to acquire others even foreign investors to move in and inject capital or even a consolidation of our existing insurers.”
Under the risk-based regime, insurers covering high-risk businesses will be forced to raise their capital levels as they will not be allowed to hold a standard capital level.
The IRA has ruled out delaying the new capital requirements that will be commensurate to the respective size and riskiness of insurers.
“We are not going to postpone or delay. This is the law and there has to be a compliance approach. We expect to start seeing them comply before 2018,” said Mr Makove.
The underwriters had called for the maintenance of the status quo, arguing that insurance firms needed more time to restructure their balance sheets and use their cash holdings to expand business.
The insurers said the new law would force some of them to dispose of their real estate investments to convert assets to capital.
Mr Makove spoke when the IRA signed anMoU with the CAK on cooperation between the two state agencies in anticipation of greater consolidation in the insurance sector.
CAK director-general Wang’ombe Kariuki said the competition agency was laying the groundwork to handle consolidation requests.
“We continue to receive a lot of enquiries from players and there are so many mergers applications we have dealt with,” said Mr Wang’ombe.
The CAK said it had set aside Sh5 million for talks between two technical teams drawn from each regulator and which are expected to come up with common positions on industry related issues.
“We want to bring transparency and predictability to the insurance sector so that even investors know what is expected of them,” said Mr Wang’ombe.
The new law is meant to bring stability in the sector where previous failure of several firms eroded public confidence, partly contributing to the low insurance penetration at less than five per cent.
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