Insurers’ ability to pay debt weakened after new rules
From left, Kenbright Ltd MD Ezekiel Macharia, Jubilee Insurance CEO Patrick Tumbo and Shipping and Marine Affairs PS Nancy Karagithu at a past event. FILE PHOTO | SALATON NJAU | NMG
Before the introduction of the risk-based underwriting, the industry had 388 per cent requirement for general underwriters and 292 per cent for life insurers.
Risk-based regime helps to assess the capital requirements of underwriters based on the risk undertaken.
Insurers’ ability to meet debt and other obligations has declined significantly since the introduction of risk-based supervision regime by Insurance Regulatory Authority (IRA) in 2015.
A study by the KenBright Actuarial Financial Services in partnership with the Association of Kenya Insurers (AKI) and IRA shows capital adequacy ratio (CAR ) — the ratio of available capital against the required capital — has dropped significantly, averaging 131 per cent and 124 per cent for general and life businesses respectively.
The findings were revealed in Nairobi yesterday during The Actuarial Society of Kenya (Task) annual convention. IRA requires firms to have CAR of at least 200 per cent.
“This is because of credit risk since people are not paying premiums on time and insurance companies have to put in more capital, and the investments that they are putting in on things like property and equities,” said Ezekiel Macharia, Kenbright chief actuary and managing director.
“The new requirement is that the insurance companies should be ready to pay for claims when they are required to do that. If it goes below 100 per cent, it means the insurer is insolvent.”
He said as more requirements come into play, the CAR is expected to diminish further.
Before the introduction of the risk-based underwriting, the industry had 388 per cent requirement for general underwriters and 292 per cent for life insurers.
Risk-based regime helps to assess the capital requirements of underwriters based on the risk undertaken.
The industry is expected to experience major changes due to forthcoming guidelines such as IFRS 9 and 17.
IFRS 17 will make significant changes to the valuation of liabilities of insurers, while IFRS 9 will make changes to the valuation and income recognition of assets.
