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| Commissioner of Insurance Sammy Makove addresses stakeholders at a past meeting in Nairobi. Insurance uptake in Kenya is low. PHOTO | ANN KAMONI | NATION |
By VICTOR JUMA
In Summary
The proposed law is part of overall stricter measures to "promote the maintenance of a safe, sound, efficient, fair and stable insurance market."
Payment of dividend by insurance firms will be tied to companies’ long-term financial health, according to a new Bill that if passed could see investors re-evaluate their expected returns on listed counters.
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The draft Insurance Bill 2014 says the underwriters will need to comply with the set capital adequacy levels before and immediately following distribution of benefits, such as dividends to shareholders.
The Bill, which also takes into account the introduction of a Financial Services Authority (FSA) to police the industry, is intended to prioritise interests of policy holders above those of owners.
READ: Bill seeks to lower hurdles for insurers
"A licensed insurer shall not make a distribution unless, immediately after the distribution, the insurer complies with (capital requirements and sound financial management)," reads the Bill.
Nairobi Securities Exchange-listed insurance firms include Britam, CIC, Jubilee, Kenya Re, Liberty Kenya Holdings and Pan Africa.
The current law does not attach such conditionality to the payment of dividends. The upcoming requirements mean insurers may be forced to reduce their dividend payouts if such distributions will weaken their financial position, even temporarily.
A number of large insurance companies pay less than half of their net profit as dividends, retaining the bulk of their earnings to fund growth.
The upcoming regulatory demands could further reduce the percentage of profits paid out as dividend, with the Bill also seeking to raise capital levels above the current minimum requirements.
The proposed law is part of overall stricter measures to "promote the maintenance of a safe, sound, efficient, fair and stable insurance market."
Massive losses
It is aimed at boosting the public’s confidence in insurers by protecting the interests of current and prospective insurance policyholders and their beneficiaries who have suffered massive losses from the collapse of several underwriters in the past.
READ: The changing face of insurance regulation
These include Blue Shield Insurance, Kenya National Assurance, Liberty Insurance, Stallion Insurance, United Insurance and Lake Star Insurance.
The current regulator, the Insurance Regulatory Authority (IRA), says the failures were brought about by mismanagement, fraud, non-compliance with the law, incompetence, economic downturns and re-insurance failures.
This has been partly linked to the low uptake of insurance in the country which has stuck below five per cent for decades. The Bill is, however, set to address such risks by giving the FSA greater oversight in insurers’ management, ownership, and capital adequacy.
Source: Business Daily
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