Mauritius-based insurer MUA Limited has disclosed that its subsidiary in Kenya may have reported misleading books of accounts for at least seven years, raising fears that the unit requires fresh capital injection to firm up operations.
The multinational says it has discovered that MUA Kenya, in which it owns a controlling 66.38 percent stake, has been understating its liabilities at least since 2017.
The firm is prepared to inject new capital to shore up MUA Kenya’s reserves following the findings that raises concerns over the quality of oversight in the insurance sector in the country.
“The company’s board of directors has taken cognisance of provisional findings of reviews carried out by management on the reserves and accounts receivables of MUA Insurance (Kenya) Limited,” said MUA in a cautionary statement published on the Stock Exchange of Mauritius where it is listed.
“The provisional findings of these reviews indicate understatement of liabilities in the accounts of MUA Kenya dating back from the year 2017 onward, as well as the need for strengthening reserves for previous years."
MUA has not disclosed the size of the understated liabilities and who is responsible for the mess that could mean the local subsidiary’s books of accounts do not reflect a true and fair position. The firm stated that even if the understatement is confirmed, it would “not meaningfully affect the financial health nor solvency of the group.”
An understatement of a company’s liabilities has the impact of inflating cash flow position and profitability. An insurance reserve, also known as a claims reserve or loss reserve, is a certain amount of funding set aside by an insurance company to meet any future claims it may have to pay out.
MUA Kenya closed nine months to September last year with liabilities worth Sh3.92 billion made up of Sh1.86 billion underwriting provisions, Sh1.47 billion long-term liabilities and Sh586.5 million short-term liabilities, according to the Insurance Regulatory Authority data.
The insurer saw its underwriting loss more than double to Sh466.3 million in the review period from Sh201.8 million a year earlier amid a fall in its market share to 1.51 percent from 2.17 percent.
The Mauritian firm entered Kenya in 2014 by acquiring Phoenix of East Africa Assurance Company and renaming it MUA Kenya. The local operation in July 2020 then acquired Saham Kenya for $12.325 million (Sh1.8 billion) and integrated it into the entity that continues to trade as MUA Kenya.
It is not clear if the understated liabilities arose from any of the two deals, which could suggest that the multinational overpaid for one or all of the acquisitions.
MUA Limited says it is pursuing the final report and has hired a legal team to recover losses linked to the understated liabilities.
“The board is pursuing efforts to obtain a final report and prompt completion of the examination. In addition, the company is engaging with a team of lawyers to explore avenues for recovery of the loss incurred as the consequence of the suspected understatement of liabilities in the financial statements,” MUA said.
The multinational has asked shareholders and the public to exercise caution in dealing with its shares on the stock exchange, promising to make further disclosures in due course.
