The implementation of risk-based capital requirements in the insurance sector is expected to see stronger underwriters acquire their weaker rivals, causing consolidation in the industry.
National Treasury Cabinet Secretary Ukur Yatani recently said the Insurance Regulatory Authority (IRA) will now implement the requirement for underwriters to meet 200 percent of the minimum capital requirements after a delay of more than two years.
Insurers with access to substantial capital have said they are open to buying out those that may struggle to comply with the impending stricter supervision.
“We have had a couple of insurance companies ask us to consider merging or acquiring them,” said Gwen Kinisu, the chief executive of Prudential Life Assurance Kenya Limited.
“And when you look at the dynamics of the insurance industry today especially given the [risk-based capital] guidelines I do not think everyone will be able to meet those guidelines. I expect that there is going to be a lot of movements in the industry with some consolidations coming up along the way.”
The insurer, which entered the Kenyan market in 2014 through the acquisition of Shield Assurance, is a subsidiary of financial services firm Prudential Plc which runs insurance and asset management businesses in Africa and Asia.
Jubilee Holdings, one of the largest insurers in the region, has also said it is keen on making deals in the Kenyan market catalysed by the higher capital requirements.
“We want to increase our market share through acquisitions. We expect that many companies will not be able to raise the required capital,” Jubilee’s chairman Nizar Juma said in an earlier interview with Business Daily.
The IRA had set new capital adequacy requirements requiring companies to meet 200 percent (previously 100 percent) of the minimum capital requirements by 2020 but enforcement was suspended.
When IRA last issued a review on compliance nearly 20, or a third of the 56 licensed insurance companies had failed to comply with capital requirements.
The minimum capital required for the general insurance business is Sh600 million while life and composite underwriters must put up Sh400 million and Sh1 billion respectively.
Some strong insurers have started the process of complying with the stricter capital requirements, providing more than 100 percent of the minimum levels as they seek to hit the 200 percent threshold.
The risk-based capital system is designed to ensure that underwriters can remain in business while meeting their obligations to policyholders and other stakeholders.