Time flies with great content! Renew in to keep enjoying all our premium content.
Prime
Mauritian firm MUA takes Sh1.6bn hit in Kenya fraud
In a breakdown of the Sh1.63 billion, MUA said it had to increase the net payables to reinsurers by Sh507 million and raise the case reserves by Sh539 million.
Mauritius-based insurer MUA Group has disclosed a Sh1.63 billion write-down after uncovering hidden liabilities in its Kenyan subsidiary, marking one of the most significant clean-ups in the region’s insurance sector in recent years.
The liabilities, detailed in the company’s September investor presentation, stem from historic misstatements in reinsurance balances and inadequate reserving practices dating back as far as 2017.
MUA Group, which owns 66.38 percent stake in MUA Kenya, says it discovered that between 2017 and 2020, reinsurance balances in the local subsidiary were “significantly overstated”. The findings led to the dismissal of the CEO.
“Decisive and comprehensive actions taken to rectify issues encountered in MUA Kenya legacy book and prevent recurrence. [The actions] included full financial review, forensic audit, leadership changes, and strengthening of internal controls and group oversight,” said the firm.
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 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.
The overstatement of reinsurance balances means the company was recording higher-than-expected recoveries from reinsurers yet in reality, it owed more. These misstatements left it with inflated assets and understated liabilities.
At the same time, the review into the adequacy of incurred-but-not-reported (IBNR) reserves confirmed that the insurer’s probable future payouts were higher than the existing reserves in several cases. This means the insurer was setting aside too little money to pay for future claims.
In a breakdown of the Sh1.63 billion, MUA said it had to increase the net payables to reinsurers by Sh507 million and raise the case reserves by Sh539 million. Case reserves represent an insurers' best guess of what claims will cost once settled.
In addition, MUA has increased IBNR by Sh242 million and impaired goodwill by Sh340 million, reflecting reduced confidence in the carrying value of past acquisitions.
The correction of errors has left MUA Kenya requiring fresh capital injection to continue operating, a situation that has prompted the parent company to open talks with the Insurance Regulatory Authority (IRA) over recapitalisation.
“Kenya remains fragile and requires recapitalisation – the process is underway,” says MUA in the investor presentation dubbed ‘Out of the Storm’.
The one-off adjustments in Kenya pushed MUA Group into a 266 million Mauritian rupees loss in 2023, reversing what had otherwise been a steady growth trajectory.
The costly liabilities triggered sweeping corrective measures. MUA commissioned a forensic audit by PriceWaterhouseCoopers, reshuffled the leadership team in Kenya and strengthened internal controls across its East African operations.
The group also expanded its oversight of reinsurance and claims reserving, requiring external experts to review open claims annually and mandating written confirmations of reinsurance balances.
In parallel, MUA says it has initiated legal actions to recover part of the damages.
