State secures Kenya Re 20pc share of local reinsurance

Kenyan insurers will soon be required by law to give a larger share of business to Kenya Reinsurance, the first time in two decades such a change is happening.

The new regulations will guarantee the listed State-owned reinsurer business, with underwriters required to cede a fifth of reinsurance business, up from the current 18 per cent.

The government has also extended the duration for the mandatory cessions by five years to 2020 securing a steady flow of business for the next five years and ring-fencing its market share in an industry attracting more players.

“That was the wisdom of the government,” said Kenya Re managing director Jadiah Mwarania.

He, however, noted the gazetted order may not take effect immediately as most insurers renew reinsurance agreements at the beginning of the year.

The reinsurer said contribution of the mandatory business had shrunk to 30 per cent from 40 per cent five years ago as it grew other lines of business, especially as an international reinsurer.

Mr Mwarania added the compulsory premiums were not unique to Kenya but were common in other countries including Uganda, Tanzania, Nigeria, Angola and India.

“Although ideally it is an open market the government still retains shareholding and would like to protect its business,” said Isaac Ngaru, managing partner of Ngaru and Ngaru Associates, a local insurance consultancy.

The government owns 60 per cent of Kenya Re which is listed on the Nairobi Securities Exchange.

Mr Ngaru noted there were some international reinsurance companies operating in Kenya to whom insurers were mandated to cede some of their business due to treaties signed between governments making it fair for Kenya to also develop its own company.

Zep-Re which is owned by the 19 countries that make up the Common Market for Eastern and Southern Africa (Comesa) enjoys a 10 per cent cessation fee while Africa Re, owned by all 53 African states, gets five per cent compulsory fees.

Added to Kenya Re’s 20 per cent, this means only 65 per cent of the business is open to competition.

Other registered reinsurers in the country are East Africa Re and Continental Re.

East Africa Re is a privately owned reinsurer under some insurance companies while Continental Re is listed in Nigeria and operates in 43 countries.

READ: Rating agency AM Best gives Kenya Re good credit score

The mandatory cession, though reduced in percentage contribution, was set to expire end of this year and the early extension calms any anxiety, especially over Kenya Re’s performance.

“Cancellation of the compulsory cessions, coupled with limited cover uptake through voluntary cessions to the reinsurer, may have medium-term ramifications,” South African rating agency GCR had warned in an assessment conducted last August.

The cession rate was initially set at 25 per cent of all policy premiums, as the government sought to ensure most of the cash collected as premium from the local economy is retained in the country, before being reduced to 18 per cent of sums reinsured in 1995.

Kenya’s insurance sector has been growing at a fast pace with industry data indicating the gross premiums rose by 22.2 per cent in the nine months to September last year.

The growth is expected to result in more business for reinsurers whose premiums rose by 13.1 per cent in the same period.

Kenya Re has expanded its international business with the conversion of West African region office in Abidjan, Ivory Coast to a subsidiary last year.

The reinsurer is also targeting southern Africa market with countries such as Zambia, Zimbabwe, Mozambique and Botswana in its sights.

Regional expansion has seen the contribution of its overseas business grow to 46 per cent in 2013 from 38 per cent five years earlier.

Kenya Re share price has remained stable in the last year when the market has enjoyed a rally with a unit trading at Sh17.50.