Liberty Assurance seeks free regional cross border set up

A local subsidiary of a South Africa underwriter is seeking removal of a requirement for insurers to open and capitalise new companies when they set up in other East African Community (EAC) countries.

Liberty Life Assurance Kenya managing director Abel Munda told the Business Daily that local insurers are hoping that the proposed harmonisation of insurance regulations within the EAC will ease the requirements for those looking to put up cross-border operations, which he said will help deepen insurance penetration in the region.

The region has low insurance penetration with Kenya’s reach at about 2.74 per cent being the highest, followed by Rwanda at about 1.6 per cent while Uganda and Tanzania are both below one per cent.

“We want to see free movement of companies between the member states within the EAC, so that you can branch out and set up there without necessarily having to set up a new company and put up capital because it is quite expensive to do so,” said Mr Munda.

“The issue of employment is also still outstanding especially for Tanzania and Burundi, where insurers setting up cross-border there will have to go through the rigours of looking for work permits for foreign staff, unlike in Rwanda and Uganda which allow for free movement of labour. These issues are constraining the free movement of companies and should be addressed.”

Capital requirements for Kenyan insurers are higher than the other countries, meaning that it would be more difficult for foreign insurers to set up shop here if asked to raise the minimum local capital required.

Under the new risk-based dispensation that is set to come into operation, general and life insurance companies must have minimum capital of Sh600 million and Sh400 million respectively, which rises as the risks a company carries grow higher.

READ: New capital rules ease funding for insurance firms

In Uganda, the minimum capital is pegged at Sh120 million for life and Sh160 million for non-life insurers, while in Tanzania the minimum capital is Sh72 million, adjusted upwards yearly for inflation.

According to Mr Munda, however, the fact that that Kenya is set to pursue risk-based supervision which escalates capital for risk should not pose a problem for harmonised regulations, saying that it will only be a matter of time before the rest of the region follows suit.

“Eventually they will follow suit. Once Kenya pioneers this move— given the more advanced insurance industry—it is very likely that other regional authorities will adopt similar regimes,” said Mr Munda.

The drive to regionalise the insurance sector—among other financial segments— gained currency in the EAC from 2013, with the goal of having a uniformity in rules for supervision of players in areas such as governance, capitalisation and reporting.

The EAC hopes that this will result in wider access to insurance cross the partner States while also giving the underwriters more investment opportunities.

The insurers would hope to copy the success of the banking sector, which has seen more cross border investment activity, broadening financial inclusion in some States while giving the lenders a wider base to raise revenue.