Finance Act, 2015: Key changes made to the Insurance Act(IA)

Posted on: December 7, 2015


Finance Act, 2015: Key changes made to the Insurance Act(IA)

The insurance sector in Kenya is another sector that has recorded substantial growth and development; it is among the most developed in Sub-Saharan Africa. It is therefore not surprising that the Government has seen the need to amend certain provisions in the IA through the Act to foster more growth and to ensure that the regulatory framework is in line with the developments in the global insurance sector. Evidently, the amendments to the IA that the Government seeks to give more regulatory authority to the Insurance Regulatory Authority(IRA) and not the Minister of Finance(now known as the Cabinet Secretary for National Treasury(see below)). Some of the other amendments to the IA are highlighted below:

Capital adequacy ratio

The IA has been amended by an introduction of the definition of the term “capital adequacy ratio”. The term refers to a measure of the available capital in relation to the required capital and is applied in the margin of solvency requirement prescribed by the IRA.

Minimum capital requirements and holding by Kenyan citizens

The minimum capital requirements specified in the Schedule could previously be amended by order of the Minister but this function has now been transferred to the IRA.  Under the amendments, the IRA has the discretion to issue a directive requiring the insurer to increase its paid-up capital to an amount higher than the minimum specified in the Insurance Regulations 2015(the Regulations) or a directive increasing the minimum capital adequacy requirement applicable to an insurer to a higher sum than that specified in the Regulations.

Minimum admitted assets in Kenya

The minimum admitted assets specified in the Second Schedule of the Act could previously be amended by an order of the Minister. This function has now been transferred to the IRA. It is noteworthy, that this order is not subject to parliamentary approval prior to the amendment.

 Application for registration

In addition to the documents currently required to be presented by an insurer for registration, the insurer is also now required to provide an investment plan for the following period of not less than three years.

Solvency margin requirements

There is no longer a distinction in the solvency margin requirements of an insurer carrying out general insurance business and an insurer carrying out long term insurance business. Both are now required to keep total admitted assets of not less than the total admitted liabilities and the capital adequacy ratio, as may be determined by the IRA. In addition, the IRA has the discretion to prescribe the method of determining admitted assets and liabilities.

Minister vs. Cabinet Secretary

The word “Minister” as used in section 47 of the Act on assets to be in the name of insurer has been removed and substituted with the phrase “Cabinet Secretary”.

Investment of assets

Previously, the Act provided that the assets of the insurer shall be invested in Kenya, in such a manner as the insurer thinks fit. The amendment now provides that the assets will be invested in accordance with the provisions of such investment guidelines as may be issued by the IRA; thereby limiting the discretion of the insurers.

Specified investments

The extensive provisions with respect to specified investments have been repealed; there is now no difference in the investment specification for insurers carrying out general insurance business or long term insurance business. Every insurer is now required to invest its assets in accordance with the investment guidelines, issued under the amended provisions with respect to investment assets.

Intermediaries, risk managers, motor assessors, insurance investigator.etc – Application for registration

Where a person registers as an agent, they are no longer required to provide a document under the hand of the principal officer of the insurer i.e for whom the person proposes to act for certifying that the person has been appointed as an agent by the insurer. This is through an agreement or appointment letter. Also, that the insurer is satisfied that the applicant has the knowledge and experience necessary to act as an agent. The IA now only requires that a registered agent seek to be appointed by an insurer before transacting business on their behalf.

Minimum capital requirements

The entire Second Schedule with respect to minimum capital requirements has been substituted with new provisions. These requirements not only increase the required monetary value but also introduce additional components, such as risk-based capital or a percentage of net-earned premiums or liabilities. The Schedule’s requirements are that:

  1. Insurers dealing with general insurance business – paid up capital of KES 600 million(an increase from KES 300 million in previous Schedule)or risk-based capital determined from time to time or 20% of the net-earned premiums of the preceding financial year, whichever is higher
  2. Insurers dealing with long term insurance business – paid up capital of KES 400 million or risk-based capital, determined by the IRA, from time to time or 5% of the liabilities of the life business for the financial year, whichever is higher
  3. Insurers dealing with re-insurance business(general business) – paid up capital of KES 1 billion(an increase from KES 500 million in the previous Schedule)or risk-based capital determined by the IRA, from time to time, or 20% of the net-earned premiums of the preceding financial year, whichever is higher
  4. Insurers dealing with re-insurance business(long term business) – paid up capital of KES 500 million(an increase from KES 300 million in previous Schedule) or risk-based capital determined by the IRA from time to time or 5% of the liabilities of the life business for the financial year, whichever is higher
  5. The amendment provides that this minimum capital shall consist of government bonds and treasury bills, deposits and cash with a minimum of 10% in any bank or group of banks and cash and cash equivalent in the case of a new company

Any insurer registered before commencement of the Schedule is to comply with these requirements by 30th June 2018

Practice Areas

  • Corporate and Commercial
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    Sectors

  • Insurance

  • Key Contacts

    Nelly Gitau

    nelly@oraro.co.ke

    020 – 271 3 636/271 1 480

    Cindy Oraro

    cindy@oraro.co.ke

    020–271 3 636/271 1 480