Big insurers plan to take over capital-poor rivals
The implementation of risk-based capital requirements in the insurance industry is expected to see stronger underwriters acquiring their weaker rivals, driving consolidation in the industry.
National Treasury Cabinet Secretary Ukur Yatani recently said that the Insurance Regulatory Authority (IRA) will now implement the requirement for policyholders to meet 200% of minimum capital requirements after a delay of more than two years.
Insurers with access to substantial capital have said they are willing to buy out those who may struggle to comply with the impending tougher supervision.
“We’ve had a few insurance companies ask us to consider merging or acquiring them,” said Gwen Kinisu, managing director of Prudential Life Assurance Kenya Limited.
“And when you look at the dynamics of the insurance industry today, especially given the [risk-based capital] guidelines I don’t think everyone will be able to follow these guidelines. I expect there will be a lot of movement in the industry with consolidations coming along the way.
The insurer, which entered the Kenyan market in 2014 through the acquisition of Shield Assurance, is a subsidiary of financial services company Prudential Plc which runs insurance and asset management businesses in Africa and Asia.
Jubilee Holdings, one of the region’s largest insurers, also said it was keen to strike deals in the Kenyan market, catalyzed by the higher capital requirements.
“We want to increase our market share through acquisitions. We expect that many companies will not be able to raise the required capital,” Jubilee Chairman Nizar Juma said in a previous interview with business daily.
The IRA had set new capital adequacy requirements requiring companies to meet 200% (previously 100%) of minimum capital requirements by 2020, but enforcement has been put on hold.
When the IRA last released a compliance review, almost 20, or a third of the 56 licensed insurance companies, had failed to meet capital requirements.
The minimum capital required for the general insurance business is 600 million shillings, while life and composite insurers must provide 400 million shillings and 1 billion shillings respectively.
Some strong insurers have begun the process of complying with stricter capital requirements, providing more than 100% of minimum levels as they seek to meet the 200% threshold.
The risk-based capital system is designed to ensure that policyholders can stay in business while meeting their obligations to policyholders and other stakeholders.