Covid-19 hit insurers face higher capital buffer July deadline

Insurance firms are facing a deadline for doubling capital buffers by next week even as the industry struggles with reduced premiums and risk of higher claims as coronavirus continues to devastate the economy.

The Insurance Regulatory Authority said it will release details of firms yet to comply with the risk-based capital requirements next Tuesday ahead of the July 1 deadline.

The new requirement meant to reduce cases where companies are unable to pay claims will increase current standard capital of Sh300 million for general business to Sh600 million or 20 percent of the net-earned premiums of the preceding financial year, whichever is higher.

Long-term business (life) insurers currently setting aside Sh150 million will raise their capital to Sh400 million, or five percent of the liabilities of the business for the financial year, whichever is higher, while a composite underwater will have to shore up capital to Sh1 billion.

Failure to meet the minimum capital required will see the regulator issue a 30-day remedial notice after which the company’s licence will be withdrawn.

The Association of Kenya Insurers (AKI) chief executive Tom Gichuhi said most firms could be facing capital issues after the Covid-19 pandemic hit motor insurance where importation and sale has gone down, travel which has collapsed to zero and cover for imported of goods reduced.

“As of mid March we had not even been having a conversation on risk-based capital. Companies have been dealing with urgent matters of survival, trying not to lay off staff and pay claims even with reduced incomes from premiums,” Mr Gichuhi said.

He was doubtful the regulator will give a blanket extension to the compliance deadline.

“I don’t think the regulator is in the business of shutting down businesses, there will be room for negotiations only if they can demonstrate they have made substantial efforts,” he said.