The Treasury has proposed amendments to the insurance law that would compel local insurers to cede a larger portion of their reinsurance business to Kenya Reinsurance Corporation (Kenya Re), raising the share from 20 to 25 percent and, for the first time, making it permanent.
The plan, detailed in the draft Insurance (Amendment) Regulations 2025 and backed by a Regulatory Impact Statement now before stakeholders, has stirred debate in a sector that has struggled with slow premium growth and weak capitalisation.
Supporters say the change will retain more premiums onshore, improve liquidity for catastrophe claims, and strengthen Kenya Re’s balance sheet.
Critics warn that increasing compulsory cessions reduces market flexibility and could discourage innovation in specialised risk placement. Below, the Business Daily breaks down what is at stake.
What is reinsurance and why does it matter?
Reinsurance is best described as insurance for insurers. When an insurance company underwrites policies—say, motor, health, or property—it takes on risk that a large loss event could wipe out its reserves.
To protect itself, the insurer passes a portion of this risk, together with a matching share of the premiums, to a reinsurer.
This mechanism allows insurers to underwrite larger policies, smooth earnings, and remain solvent after big shocks such as floods, fires, or pandemics. It also protects policyholders indirectly: a well-reinsured company is less likely to collapse or delay claims when disasters strike.
Globally, reinsurance is a trillion-shilling business dominated by giants such as Munich Re and Swiss Re, but developing economies often maintain a national reinsurer to build local capacity and retain foreign-exchange earnings.
Why does Kenya Re receive 20pc mandatory business?
Kenya Re was established in 1970 as a State-owned reinsurer to mobilise local insurance capacity and conserve foreign currency.
Under Section 136 of the Insurance Act and subsequent regulations, local insurers are required to cede a fixed proportion of their treaty reinsurance—currently 20 percent—to Kenya Re before placing the rest with other local or foreign reinsurers.
The policy, known as “legal cession,” ensures the national reinsurer has a guaranteed stream of business from all licensed insurers. In return, Kenya Re is expected to provide technical support, maintain strong retrocession arrangements with international reinsurers, and act as a stabilising anchor for the market. The 20 percent cession has been in force for several years, following earlier levels of 18 percent.
In theory, a fully open market should drive down prices and allow insurers to seek the best reinsurance terms globally. However, most emerging economies use limited compulsory cessions to nurture domestic capacity, just as they protect strategic sectors like energy or telecoms.
Supporters of the Kenyan model argue that retaining part of the reinsurance premium locally reduces hard-currency outflows—currently billions of shillings annually—and keeps technical expertise in the country.
Kenya Re, they note, has paid substantial dividends to the Treasury and supports national disaster pools such as the livestock insurance programme.
Opponents counter that a guaranteed cession reduces competition, potentially allowing inefficiencies at the national reinsurer and limiting the ability of insurers to negotiate specialised or cheaper cover abroad. They favour a gradual liberalisation once Kenya Re attains full market competitiveness.
Why is the Treasury seeking 25 percent and making it permanent?
The proposed Insurance (Amendment) Regulations 2025 would lift the compulsory cession to 25 percent of treaty reinsurance and make the requirement continuous—ending the previous practice of annual gazettement.
According to the Treasury, the move is driven by three objectives. The first objective is to deepen retention. Each additional percentage point retained locally keeps millions of shillings in the economy, strengthening reserves and reducing reliance on offshore reinsurers.
Second is attain stability and predictability. A permanent framework eliminates yearly uncertainty for both Kenya Re and ceding insurers.
Lastly is alignment with Kenya Re’s privatisation roadmap. By building a stronger balance sheet before the State reduces its shareholding, Treasury hopes to enhance the corporation’s valuation.
Indeed, the proposal seeks to make the 25 percent mandatory cessation a continuing requirement, remaining in force until Kenya Re is privatised or the regulations are further revised.
This will be a departure from the current practice in which reinsurer reapplies for the mandatory cessation each year. Critics, however, view permanence as entrenching a monopoly. They argue that instead of compulsion, Kenya Re should win business through competitive pricing and service.
How has this changed over the years?
In the 1970s, Kenya built a State-directed reinsurance system. Kenya Re was set up in 1970/71 and insurers were required to cede a fixed slice of business to it (“legal cession”) before placing the rest elsewhere.
From 1978, a separate law also compelled local insurers to offer part of their reinsurance treaties, about five percent, to Africa Re. The idea was to keep premiums and expertise at home and ensure quick support when big losses hit.
By the 1990s, policy began to liberalise but not to scrap compulsion altogether. In 1993, Kenya joined the regional PTA Re (now ZEP-RE), adding a mandatory 10 percent offer to that reinsurer. Mid-to-late decade reforms then phased down the broad policy-by-policy cession to Kenya Re and shifted to a narrower treaty-based legal cession—set at about 18 percent by the end of the 1990s.
How will this proposal affect local insurers?
For insurers, the change will have both benefits and costs. On the positive side, Kenya Re’s larger share could translate to faster recoveries on local catastrophes, since settlement would happen within the domestic system rather than through lengthy international processes. It may also stabilise treaty negotiations by guaranteeing a predictable local partner.
However, insurers may lose a measure of flexibility. A fixed 25 percent means only three-quarters of their treaties can be placed freely, possibly limiting access to niche covers—such as cyber, aviation, or marine risks—where foreign reinsurers offer deeper expertise.
Pricing may also tighten if Kenya Re raises rates to manage the higher exposure.
In solvency terms, insurers’ capital positions are unlikely to change significantly, as ceded risk still counts toward regulatory cover. But actuaries caution that concentration risk—depending heavily on one counterparty—must be watched, even though Kenya Re maintains retrocession treaties with global players.
Which other markets have forced reinsurance?
Kenya is not an outlier in using compulsory reinsurance. Across Africa and Asia, several markets reserve a slice of business for national reinsurers. In India, all non-life insurers must cede 4 percent of each policy to the state-owned GIC Re.
Tanzania requires a 10 percent policy-level cession and a 20 percent treaty cession to TAN-RE. Ethiopia directs five percent of every policy and 25 percent of treaties to Ethio-Re.
Ghana previously mandated a 20 percent cession to Ghana Re until 2008, and some classes still carry smaller compulsory shares. Nigeria applies selective mandatory cessions to Nigerian Re and Africa Re in specialist lines such as oil, aviation and marine.
By contrast, mature markets like the UK and South Africa rely on fully competitive placement without legal cessions. Many smaller or developing economies, however, use national reinsurers to retain premiums, build local technical capacity and deepen markets before moving toward fuller liberalisation.
