Twenty-three insurance companies had inadequate capital in the financial year ended December 2023 but continued to operate into this year, shining a spotlight on their ability to meet their obligations including paying claims on time.
Latest data from the Insurance Regulatory Authority (IRA) shows 15 of the 35 general insurers and eight out of the 25 long-term insurers held capital below the minimum required –a figure that varies from one player to another depending on the level of risks taken.
The breach in capital means the 23 have received premiums from customers and taken on risk beyond what they can handle in case of substantial rise in claims.
The insurers, including GA Life, Pioneer, CIC Life, Madison and Directline, closed 2023 with a combined capital shortfall of Sh32.2 billion, presenting a mismatch between capital and risk.
The Insurance Act mandates the IRA to determine capital levels required by insurers by taking into consideration the capital for insurance risk, market risk, credit risk and operational risks. The law requires insurers to maintain a capital adequacy ratio of 100 percent at all times.
General insurers are supposed to maintain minimum capital at a higher of Sh600 million, risk based capital determined by the IRA from time to time or 20 percent of the net earned premiums of the preceding financial year.
For life insurers, the minimum capital is the higher of Sh400 million, risk-based capital determined by the IRA from time to time or 5.0 percent of the liabilities of the life business for the financial year.
Most of the insurers in breach of capital levels also feature in the list of the 17 insurers that the IRA fined millions of shillings over various breaches, including late payment of claims. They also appear in the list of insurers against which customers have the most complaints such as delayed or declined settlement of claims.
Despite the minimum capital breaches, the IRA says it has been pushing for compliance as part of efforts to bring stability in the market and promote a “fair and level playing field.”
“In fulfilling the Authority’s focus on promoting fair competition among insurers, the Authority has been implementing the risk-based capital requirements to assess insurers’ capital requirements based on the risks they are exposed to,” says the IRA in the annual report for 2023.
Madison closed 2023 with negative capital of Sh2.18 billion against its required minimum of Sh3.09 billion, as assessed by the IRA, while that of Corporate Insurance Company was at negative Sh510.77 million against the required minimum of Sh400 million.
This means that Madison requires about Sh5.27 billion to comply with minimum risk, making it the insurer with the highest shortfall.
Other big shortfalls under life insurance are from Corporate Insurance (Sh910.77 million), CIC Life (Sh924.3 million), Kenya Alliance (Sh898.47 million) and GA Life (Sh551.72 million).
Under general insurance, which insures short-term business such as motor and medical, eight of the 15 players had negative capital.
Three general insurers whose sister companies in life business breached capital requirements also feature in this list.
Invesco Insurance, which has been battling court cases calling for its liquidation to pay claims, had negative Sh6.94 billion against the required minimum of Sh600 million, leaving it requiring Sh7.54 billion to restore the minimum capital.
On August 14 this year, the IRA placed Invesco under statutory management, barring it from issuing any new covers. The regulator’s annual report shows it hit Invesco with a Sh16.18 million fine owing to failure to submit audited reports and settle claims on time. In the prior year, Invesco was fined Sh31.26 million.
Monarch Insurance requires about Sh3.96 billion to get out of the negative capital of Sh3.36 billion and comply with minimum capital requirements. Insurers requiring at least Sh1 billion to match their risks with capital include Directline Assurance (3.09 billion), Kenya Alliance (Sh1.49 billion), Kenya Orient (Sh1.21 billion) and Occidental (Sh1.02 billion).
