A third of insurers risk ban for failing to comply with law

Association of Kenya Insurers (AKI) chairman Mark Obuya (left) and executive director Tom Gichuhi (right) with Insurance Regulatory Authority chief executive Sammy Makove at the launch of AKI Market Report last August in Nairobi. Photo/File
Association of Kenya Insurers (AKI) chairman Mark Obuya (left) and executive director Tom Gichuhi (right) with Insurance Regulatory Authority chief executive Sammy Makove at the launch of AKI Market Report last August in Nairobi. Photo/File 

A third of Kenya’s insurance companies risk deregistration after failing to comply with regulatory requirements by the December deadline with breach of ownership limits coming top.

Insurance Regulatory Authority (IRA) chief executive Sammy Makove said that 15 insurers have failed to meet regulatory requirements including shareholder limits, financial health and integrity of directors and executives.

Insurance law limits individual ownership to a maximum of 25 per cent stake and gives the regulator powers to monitor activities of shareholders controlling more than 10 per cent of the insurers who can now be forced to sell their stake should they be found guilty of fraud and other malpractices.

The ownership of the bulk of insurance companies remains a tightly guarded secret and IRA last year hired the Institute of Certified Public Secretaries of Kenya (ICPSK) to establish the shareholding structure of the insurers.

 “We have renewed licences of 30 insurers and the rest who are yet to comply have up to March 1 to do so,” said Mr Makove without identifying the affected firms.

“Nine insurance companies have not been cleared by ICPSK. The remaining few weeks is their last chance to comply. We expect they are working on their shortcomings.”

The government has stepped up its policing of the sector in an effort to stem the instability that gripped the industry in the decade to 2005.

Analysts reckon that the withholding of the 15 licences is set to have little impact in hurting the confidence of policy holders because the issues border on corporate governance rather than non-payment of claims.

“For policy holders, the problem arises when an insurer is unable to pay out claims. For now the non-compliant insurers appear to be largely affected by corporate governance issues,” said Isaac Ng’aru, a partner with Ng’aru and Associates, an insurance consultancy firm.

The law on the significant shareholders is aimed at reducing the influence and power of key stakeholders in insurance firms and ensures that individuals of high integrity sit on the boards and executive suites of Kenya’s insurance firms.

Insurers were given three years from 2009 to comply with the shareholder rule that caps individual ownership of directors and executives at a quarter of an insurer’s shares, but companies had the window to seek a two-year extension through the Finance minister after showing compliance plans.

Some of the prominent individuals who have key stakes in insurance companies include Joe Wanjui and Chris Kirubi, both at UAP Insurance, businessman Pius Ngugi (Kenya Alliance Insurance), Peter Nduati (Resolution Health East Africa), and Baloobhal Patel (Pan Africa Insurance Holdings).

The family of the late Central Bank of Kenya governor Philip Ndegwa owns a majority stake in ICEA Lion Group, which owns ICEA and Lion of Kenya insurance companies through First Chartered Securities.

“We have written to the insurance firms telling them that they must now comply with the limit on individual shareholding,” Mr Makove said.

The quest to control shareholding has sparked deal making in the insurance sector. UAP Insurance, Resolution Health East Africa and Mercantile Insurance are some of the firms that have invited new shareholders to raise capital and dilute the holding of majority owners.

The unmasking of shareholding structure of insurers by ICPSK will also allow the regulator to monitor the activities of people controlling more than 10 per cent of the firms.

This was part of the tough rules targeting executives and directors contained in the Finance Bill 2012 which was unveiled by Finance minister Njeru Githae on June 14.

The Bill declares significant shareholders as those with more than 10 per cent ownership.

But IRA reckons that it needs a clearer picture of the insurers’ shareholding structure to implement these laws.

The regulator says the new rules on significant owners heavily borrows from Kenya’s Anti-Money Laundering Act and best practice standards set by the International Association of Insurance Supervisors.