Kenya’s top insurance companies, including CIC and Jubilee, have missed the deadline for publishing financial results for the year ended December 2023 as they struggle to comply with a new industry accounting standard, denying investors and policyholders a peek into the financial health of the firms.
Insurance firms must publish their financial statements before the end of April and a number of Kenya’s insurers have sought approval from the Insurance Regulatory Authority (IRA) to breach the deadlines.
The insurers have struggled with the switch to the new rules on how they report their profits, known as IFRS 17—which aims to make it easier for investors and analysts to compare the performance of the companies.
The accounting standard is also designed to smooth out performance by forcing insurers to record profits from long-term policies over the life of the contract, rather than upfront.
IFRS 17, which was first published in May 2017, was met with resistance from insurers, who said it would be costly to implement in a short time.
The insurers cited high compliance costs from items such as upgrade of IT systems to recalculate millions of contracts each reporting period, advancement of staff skills, hiring of consultants, restating 2022 results and delays in building consensus between their actuaries and auditors over the application of the new rules.
Firms such as Jubilee, CIC and Kenya Re— which are listed on the Nairobi Securities Exchange (NSE)—are yet to make public their performance, citing the impact of IFRS17 on the pace of auditing, especially for those operating in more than one country and requiring consolidated statements.
CIC, for instance, received a regulatory extension of up to a month and will now be releasing the results by the end of May 2024. “The delay has been caused by the implementation of the new IFRS 17, which introduces significant changes to the accounting and reporting requirements for insurance contracts. We have dedicated extensive resources and efforts towards ensuring full compliance and implementation,” said CIC in a notice.
Some insurers such as Britam and Sanlam were able to meet the April 30 deadline. However, some of them said this required additional hours of work to meet the deadline, even as the regulator denied some firms an extension.
“IRA should have given a blanket extension of about a month. When we looked at 15 days to the end of the reporting period, we felt we might not be able to comply. We sought an extension from the IRA but it declined. That meant working as late as 11pm for a whole week to work on the results,” said a top executive in one of the insurance firms who spoke on condition of anonymity for fear of reprisals from the regulator.
“One of the challenges we experienced across the industry was the sourcing for a good IFRS17 engine (software). Many of the engines available were not customised to the products that we have in the Kenyan market compared with the European or Indian world. We also needed to clean our data to the specifications of the engine acquired.”
Under IFRS 17, insurers will have to calculate income from policies like motor insurance to annuities using interest rates and other market information updated for each reporting period. This ends the practice of insurers using data from when the policy was taken out.
Accounting firm Deloitte had warned that the “once in a lifetime change” would not come cheap.
The Insurance Act provides a penalty of Sh200,000 for publishing profit statements after April 30, and levies a further fine of Sh10,000 for each day an insurer remains non-compliant.
The Association of Kenya Insurers (AKI), the lobby for insurers, rallied insurance firms to acquire a joint software but the effort was scuttled by concerns over data security.
This left each insurer on its own, forcing each into spending up to Sh100 million to get suitable software depending on the size of the business, number of products and markets of operation.
Sanlam Kenya Group chief executive Patrick Tumbo said the company was able to meet the deadline because of starting the switch to IFRS 17 much earlier and riding on the financial muscles and expertise of its parent South Africa firm, Sanlam Group.
“When the [IRA] commissioner issued a notice, we embarked on training and worked with our auditors and also got assistance from Sanlam Group headquarters because the whole group was to turn to IFRS 17 at the same time,” said Mr Tumbo.
“We had to restate results for 2022 in line with the new standard and prepare for 2023 to ensure the records talk to each other. But it is more than just restating the accounts. It is like starting a new store.”
AKI in 2022 trained its members on the new standard, saying that it was working with the IRA to develop industry guidelines to ensure smooth transition. The lobby said it expected the transition to take two and half to three years.
IFRS 17 aims to provide a more transparent and consistent approach to reporting for insurance contracts and the financial position of insurers. The standard, for instance, drops reporting on gross written premiums, which includes items such as pension contributions that ordinarily belong to customers. Instead, it introduces reporting on insurance service revenue, which is what belongs to insurers.
The IRA disclosed in September last year it was looking for a consultant to review how the new accounting standard was going to impact underwriters and find ways of ensuring a smooth implementation.
The regulator said the consultant would “conduct an impact assessment on the industry after the submission of the restated 2022 IFRS 17-compliant financial statements.”
The IRA expects the consultant to align the risk-based capital model with IFRS 17-compliant statutory returns and templates and also review and identify the necessary adjustments required in its systems, tools, and processes to ensure effective supervision of the industry under the new standard.
