Companies

Kenya Re explores growth areas as it turns 50 years

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Jadiah Mwarania, the Kenya Re managing director. FILE PHOTO | NMG

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Summary

  • Managing Director Jadiah Mwarania shares with the Business Daily his reflections on the state of the industry, and the reinsurer’s achievements, challenges and what lies ahead.

Kenya Reinsurance Corporation Limited (Kenya Re) #ticker:KNRE is turning 50 this year, having been established through an Act of Parliament in December 1970. It is the oldest reinsurer in Eastern and Central Africa.

Managing Director Jadiah Mwarania shared with the Business Daily his reflections on the state of the industry, and the reinsurer’s achievements, challenges and what lies ahead.

THE INSURANCE AND REINSURANCE INDUSTRY WAS QUITE CHALLENGING IN 2018. DID YOU SEE ANY RECOVERY LAST YEAR?

Last year was relatively better than the previous year for us even though we can’t disclose numbers now. But industry-wise, the broad challenges still persist. Undercutting of premiums is still there because of intense competition given that we are about 10 reinsurers and over 54 insurers chasing the same business. The outlook is tough and companies will have to employ different strategies and technologies to reduce the cost of operations, increase product offerings and enhance distribution channels.

REINSURES’ PREVIOUS ATTEMPT TO SET MINIMUM PRICES TO BEAT PRICE UNDERCUTTING WAS BLOCKED BY COMPETITION WATCHDOG. WHAT IS THE WAY FORWARD?

The Association of Kenya Reinsurers tried to set floor prices for the market since we are in a position to determine sustainable prices but the Competition Authority of Kenya ended up fining us. All insurers are expected to file minimum rates per class of business with Insurance Regulatory Authority (IRA) but the reality is that they still end up charging prices less than that. This mechanism has not worked well since penalties for breaching own rates are way too low at Sh200,000 and this means if insurers can undercut and make more, they can easily pay. This should be increased. Maybe in the fullness of time the market can regulate itself and drive out those undercutting prices.

YOU ARE PROPOSING STIFFER PENALTIES FOR THOSE INVOLVED IN PRICE UNDERCUTTING. WHAT WOULD BE THE IDEAL LEVEL?

Instead of fixing it at Sh200,000, why not say the culprit pays three times the premiums collected? This will deter the practice.

Penalties by the Central Bank of Kenya and the Capital Markets Authority are for instance way much higher and this should be the direction to go. But insurance companies say reinsurers have been encouraging the vice by accepting to underwrite undercut businesses. It is quite tricky because what insurers sell to reinsurers are treaties. Reinsurance treaties are blind. You don’t know what is in. If Kenya Re has treaty with an insurer, the insurer does not disclose the premium rates or the portfolio of businesses put in. If they are passing to us an undercut business, it simply means they are also passing less premiums to us. That is a challenge.

LAST YEAR KENYA RE GOT APPROVAL TO SET UP A SUBSIDIARY IN UGANDA. WHAT IS THE UPDATE ON THIS?

We got the licence for Kenya Re Uganda and we now have an office with three staff. We are now doing business and actually made renewals for business this year. Some logistics are still being undertaken though.

WILL THIS SEE YOU SELL YOUR 11.5 PERCENT STAKE IN UGANDA RE?

No. Our investment in Uganda Re is strategic. We were being locked out of the market as Kenya Re through the law of business domestication of which meant Ugandan reinsurers were given priority for business. This has been a dear market but our share had declined with the domestication rules. So we set up a subsidiary to defend the market and be able to grow it. Uganda Re and Kenya Re Uganda will for sure compete for business but one is an investment and the other is a direct business. Where we lose business, we will get the dividends.

WHAT OTHER MARKETS HAVE YOU SET YOUR EYES ON?

We have completed feasibly studies for Sudan, Egypt and Nigeria but we think we wouldn’t rush to set up another subsidiary this year. But next year or thereafter we are thinking of Egypt for re-takaful business given the large Muslim population. That could be our next stop next year.

LAST YEAR YOU CREATED TWO BILLION SHARES. WHAT IMPACT HAS THIS BROUGHT TO THE BUSINESS?

The two billion shares helped us move our capital from Sh1.75 billion to Sh6.99 billion. This was necessary for purposes of accessing some markets like Egypt.

The revised Egyptian insurance law that was enforced last year raised minimum capital base for reinsurers from Sh391.98 million (E£60 million) to Sh6.49 billion (E£1bn). So we are now compliant.

THE COMPULSORY CESSIONS ARE EXPIRING THIS YEAR. ANY ROOM FOR EXTENSION?

They are meant to lapse in December but historically government always renews. It is a decision for them to make but we will be calling for a renewal and possible increase of the cessions.

We will make a proposal for the mandatory cessions to be extended and if possible, to be increased. If it is the trend in other countries, who are we to be exempted?

SOME INSURERS SAY SUCH COMPULSORY CESSIONS DENY THEM FREEDOM OF PICKING WHERE TO TAKE THEIR BUSINESS AND MAKES YOU NOT INNOVATE.

We were set up 50 years ago and part of our mandate is to help retain premiums here instead of them flowing out.

So we think the cessions have been relevant and should continue. The insurers should tell us if there is anything they are failing to get from us.

Compulsory cessions make up 35 percent of our revenue. The idea is to grow so that the volume of business coming outside Kenya goes beyond the current 50 percent.

WHEN THE INDUSTRY CAME UP WITH MARINE INSURANCE, THERE WAS A LOT OF PROMISE AND HOPE BUT THIS HAS FIZZLED. WHAT HAPPENED?

There is a missing link. The government had intended that all marine cargo imports should be insured and reinsured here. But this has not fully materialised. There was an increase, but not as much as we had hoped because goods being imported here are still insured outside. We require more checks from both the IRA and the Kenya Revenue Authority to fully enforce the directive of domesticating marine business.