The placement of Kuscco Mutual Assurance under statutory management has complicated the sale of the insurer, dealing a blow to saccos that had converted their claims worth Sh660 million into shares of the troubled firm.
On Monday, the Insurance Regulatory Authority (IRA) placed Kuscco Mutual –a subsidiary of saccos’ umbrella body, Kenya Union of Savings & Credit Co-operatives Ltd (Kuscco)— into statutory management.
The development, which signals distress resolution phase, comes when Kuscco was in negotiations with potential buyers to offload its 60 percent stake in the insurer to raise at least Sh1.6 billion and use the proceeds in settling part of the billions of shillings it owes saccos following a Sh13.3 billion heist at the umbrella organisation.
Eighteen saccos had converted Sh660 million outstanding insurance claims against Kucco Mutual into a stake as part of the process of reducing liabilities of the insurer and helping the umbrella body sell it at a good price.
Now the placement of Kuscco Mutual under the care of the Policyholders Compensation Fund (PCF) means the insurer can no longer onboard new customers or write new business.
The intervention effectively places the company in a recovery phase focused on safeguarding existing policyholders and assessing its financial position.
However, failure to secure fresh capital within the required timeframe could push the insurer into liquidation, a process that often fails to raise enough funds to settle all liabilities, saddling shareholders with losses.
Letters seen by this publication show, IRA had written to Kuscco Mutual on several occasions. On January 15, IRA informed Kuscco Mutual that it had recalled the notice of license cancellation it had issued to the insurer on December 17 last year after it submitted a remediation plan.
“Please note that if compliance is not achieved within the given timelines, the authority will take appropriate regulatory action as provided for under the Insurance Act without further reference to Kuscco Mutual,” reads one of the IRA letters to the insurer.
However, the insurer failed to act on its own plan, triggering Monday’s move that also affected Trident Insurance Company and Corporate Insurance Company. Kuscco Mutual had failed to maintain the minimum capital adequacy ratio of 100 percent as required by law and also breached the requirement to have competent and IRA-cleared staff in top management.
In addition, it failed to maintain Sh5 million or five percent of its assets (whichever is higher) at the Central Bank of Kenya.
The Sh660 million is equivalent to 55 percent of Sh1.2 billion outstanding liabilities that the insurer has on its books, mostly being unpaid insurance claims to saccos. Many cooperatives had taken up cover with the insurer and regularly remitted premiums before the subsidiary was hit by financial headwinds tied to years of alleged mismanagement and theft at Kuscco.
Kuscco has been keen on relinquishing its stake in the insurer to enable it recoup its investments and refund the capital back to saccos in line with its recovery strategy. The investment in the insurer was about Sh1.6 billion.
