IRA gets power to force investors out of insurance firms
Shareholders controlling more than 10 per cent of insurance firms will be forced to sell their stakes if found to be in breach of new regulations aimed at improving corporate governance in Kenya’s insurance market.
The Insurance Regulatory Authority (IRA) will also have the powers to force the resignation of executives and directors who are bankrupt, or guilty of fraud and other malpractices in their business and personal transactions.
These are some of the tough rules targeting executives and directors contained in the Finance Bill 2012 which was unveiled by Finance minister Njeru Githae last Thursday.
The Bill declares significant shareholders as those with more than 10 per cent ownership in an insurer ‘‘A significant shareholder means a person who holds more than 10 per cent of the controlling or beneficial interest in a person licensed under this act,” said Mr Githae.
“A person who, upon assessment under this section, is not certified by the authority as fit and proper to manage or control a person licensed under this Act, shall be deemed to be disqualified from holding such office,” added Mr Githae. The rules are aimed at reducing the influence and power of key shareholders in insurance firms and ensure that individuals of high integrity sit on the boards and executive suites of Kenya’s insurance firms.
It is seen as an enhancement of the ownership rules introduced in 2009 that limited individual ownership to a maximum of 25 per cent stake and capped the shareholding of directors and senior managers at the same threshold.
The twin rules were introduced to loosen the grip of major shareholders on insurers following a spate of collapse of the firms in the past two decades.
“No person shall control, or be beneficially entitled, directly or indirectly, to more than 25 per cent of the paid-up share capital or voting rights of an insurer,’’ says the Insurance Act.
Insurers were given three years from 2009 to comply with the shareholder rule, but companies had the window to seek for a two-year extension through the Finance minister.
The IRA issued new regulations to break up composite insurance companies in a bid to curb rising cases of mismanagement.
Composite insurance companies combine both life and general business — insuring property and cars for example. These companies have been diverting cash from the life business, which is mostly long term, to meet claims arising from the general business.
Some of the key individuals who have key stakes in insurance companies include Joe Wanjui and Chris Kirubi, both at UAP Insurance, businessman Pius Ngungi (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 also owns a majority stake in ICEA Lion Group, which owns ICEA and Lion of Kenya insurance companies through First Chartered Securities.
But ownership of the bulk of Kenya’s insurance companies remains a tightly guarded secret.
The IRA says the new rules on significant owners heavily borrows from Kenya’s Anti-Money Laundering (AML) Act and best practice standards set by the International Association of Insurance Supervisors (IAIS).
This means that, for instance, directors and major investors found guilty of breaches laid out in the AML Act will be compelled to sell their portfolios and resign from their directorships or managerial positions.
“Examples of such measures could include the power to require the Significant Owners to dispose of their interests in the insurer within a prescribed period of time, the suspension of the exercise of their corresponding voting rights, or the nullification of any votes cast or the possibility of their annulment,” says IAIS.
