Regulator silent on higher capital for insurance firms

Capital Markets

Regulator silent on higher capital for insurance firms


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Insurance Regulatory Authority CEO Godfrey Kiptum. FILE PHOTO | NMG

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Summary

  • Insurers speaking in confidence revealed the regulator has been mum since offering temporary reprieve two years ago to allow the industry to recover from the adverse effects of the Covid-19 pandemic.
  • The Insurance Regulatory Authority (IRA) had set new capital adequacy thresholds requiring companies to meet 200 percent (previously 100 percent) of the Prescribed Capital Ratio (PCR) by June 2020.
  • 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.

Insurance companies have been spared from making cash calls to increase their capital or risk closures for nearly two years since the June 2020 deadline for complying with the new risk-based regulatory framework.

Insurers speaking in confidence revealed the regulator has been mum since offering temporary reprieve two years ago to allow the industry to recover from the adverse effects of the Covid-19 pandemic.

The Insurance Regulatory Authority (IRA) had set new capital adequacy thresholds requiring companies to meet 200 percent (previously 100 percent) of the Prescribed Capital Ratio (PCR) by June 2020.

However, the National Treasury gave insurance firms an additional six months to comply as a support measure during the pandemic.

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.

“There has been no update on the higher capital requirement in terms of a new deadline. We are still waiting, ”an executive at one of the insurers said.

Another source told Business Daily that insurers are at different levels of compliance, with a few above the 150 percent capital mark.

Implementation of the higher capital requirements is expected to see underwriters raise more capital, with some players struggling to meet current capital levels.

Resolution Insurance recently collapsed with over Sh6.5 billion in client cash, insurance claims, and creditor debts after its shareholders failed to recapitalize the business.

Cash flow problems saw the insurer’s cover rejected by some hospitals for late settlements of bills.

IRA was forced to place Resolution under statutory management because of its financial problems stating that efforts to rescue the insurer, including injection of additional capital, had failed.

The risk-based capital adequacy is meant to reduce cases where companies are unable to pay insurance claims.

The capital required increased from the current standard 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 who had been setting aside Sh150 million were required to raise their capital to Sh400 million, or five percent of the liabilities of the business for the financial year, whichever is higher. A composite underwater will have to shore up capital to Sh1 billion.

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