Kenya regulator plans audit of insurance firms - Capital Business
Connect with us

Hi, what are you looking for?

Kenya

Kenya regulator plans audit of insurance firms

NAIROBI, Kenya, May 4- As the June 14 deadline approaches for insurance companies to raise their minimum paid up capital as per the proposed regulations, the Insurance Regulatory Authority (IRA) has planned an audit to ascertain the firms that have conformed to the guidelines.

The Authority’s Chief Executive Officer Sammy Makove said they have sought the services of independent auditors who, immediately after the expiry of the deadline, start the exercise that will help determine the action that they would take.

“The auditors shall issue a certificate of compliance to the companies that will have met this requirement. Those that will not have complied will have their trading licenses withdrawn,” Mr Makove pointed out.

General business, life and composite insurance companies are required to raise their minimum capital to Sh300 million, Sh150 million and Sh450 million respectively in three years which ends in June 2010.

The requirement that was contained in the 2007/2008 budget stemmed from the fact that many insurance firms were undercapitalised and it was therefore meant to ensure strong institutions and safeguard the interests of policyholders.

When the regulations were announced, industry experts predicted mergers and acquisitions as one way that many firms, majority of which are individuals and family owned, would employ in order to raise the additional funds. However, not many of these buyouts have been witnessed in the market.

Despite this situation, Mr Makove said such companies have various options such as an injection of additional capital by their directors or from pairing up with strategic investors. The conversion of shareholder funds into paid up capital is another alternative that they can consider.

The condition also applies to banks which are supposed to increase their minimum core capital to Sh1billion by December 31 2012.

In an emailed response to questions by Capital Business, Central Bank of Kenya said there were 18 out of the 44 banks in the country that had a minimum core capital of below Sh1billion as at December 2009.

Advertisement. Scroll to continue reading.

CBK however said that these institutions submitted their capital build up plans to which provide a roadmap as to how they intend to attain the capital requirements upon the end of the expiry date.

“The plans include profit retention and/or capital injection and these agreed with the CBK and (they) are on track. There are prudential guidelines and legal requirements for this,” the regulator said adding that they were closely monitoring the situation to ensure compliance.

The CBK said no additional time would be given to players who will not have conformed to the directive.

At the same time, the Kenya Bankers Association Executive Director John Wanyela expressed confidence that all commercial banks will have met the requirement ahead of the deadline pointing to the several options available to them.

While acknowledging that competition in the sector is stiff, Mr Wanyela opined that it would also be the determinant of whether the small banks would be edged out or survive.

“Those banks however small they are, are serving a niche market. If they didn’t have the market to serve, they would not be there. So mergers will come but it doesn’t mean that they will close shop if they do enter into them,” he said.

 

 

Advertisement. Scroll to continue reading.
Advertisement

More on Capital Business