By Walter Amoko | Lena Onchwari
Amidst controversy and recriminations across board, the Finance Bill, 2018 (the Bill), was eventually passed on a special sitting of the National Assembly on 20th September, 2018 and the President assented to it on the 21st September, 2018.
While the political branches were considering the Bill, a Constitutional Petition challenging its propriety on multiple grounds including whether or not it had been presented to Parliament in time, as well as the constitutionality of bringing some of its provisions into force before its enactment, was being litigated before the Courts. A day before the Finance Act, 2018 (the Finance Act) was passed, the High Court delivered its decision, upholding two of the grounds the redoubtable Mr. Omtatah had pressed. One was the headline grabbing invalidation of the Provisional Collection of Taxes Act which allowed the Cabinet Secretary (CS) Finance, to enforce provisions of the Finance Act before it was enacted. Lady Justice Okwany held that under Article 94 of the Constitution, only Parliament could pass legislation, and it had to be done within the stipulated process which included such fundamental issues such as effective public participation in law-making. By allowing prior enforcement of provisions of a bill by way of orders issued by a Minister, however temporarily, not only does the Executive unlawfully usurp the exclusive non-delegable powers of Parliament but also undermined the salutary inclusive law-making process.
Click here to read an in depth summary of the key changes introduced by the Finance Act.
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.
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:
Any insurer registered before commencement of the Schedule is to comply with these requirements by 30th June 2018
The entire Companies Act, 2015 (the Act) became operational on 15th June, 2016, pursuant to Legal Notice No. 109 of 2016. Prior to this, the Act was partially operational. Notably, one of the sections that became operational on the said date was Section 975 regarding the procedure for registration of foreign companies and which required that an application for the registration of a foreign company must demonstrate that at least thirty percent (30%) of the company’s shareholding is held by Kenyan citizens by birth. As discussed in our earlier alert, this provision was controversial for the reason that it discouraged foreign direct investment. The implication of this was that (foreigners and) foreign companies seeking to invest in Kenya could mainly realize this through wholly owned subsidiaries as opposed to branches and direct foreign investment. By way of Section 85 of the Finance Act, 2016, the thirty percent (30%) local shareholding requirement for foreign companies has been repealed, effective 1st January, 2017. The said Section amended the Act by deleting the provision imposing the thirty percent (30%) local shareholding requirement in respect of foreign companies. It is our view that this amendment will be warmly received by foreigners looking to invest locally and will further open up the Kenyan business frontier by simplifying entry into the local market.
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