Insurance mergers and buyouts loom on new accounting rules

Thursday January 4 2018

Godfrey Kiptum (right), IRA acting commissioner of insurance. FILE PHOTO | NMG

Godfrey Kiptum (right), IRA acting commissioner of insurance. FILE PHOTO | NMG 

By JAMES NGUNJIRI
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More mergers and acquisitions are expected in the insurance industry this year as new accounting standards meant to improve balance sheet disclosures start taking effect.

Insurance Regulatory Authority (IRA) is engaging standard-setting bodies and will be advising companies on compliance to the International Financial Reporting Standards (IFRS) 9 and 17.

“The standards are aimed at increasing transparency on insurance contracts. The authority will require companies to implement the standards once we issue guidelines and circular later,” said Godfrey Kiptum, IRA acting commissioner of insurance.

Both IFRS 9 and 17, will assist financial institutions recognise and account for risks more prudently, largely in response to the global financial crisis of 2008.

Analysts predict the effect will spur mergers and acquisitions. “Mergers are part of the solution, but not the only solution. Changes in business operation and understanding the insurer’s risk will be the likely routes insurers take. This will include hiring more analysts and actuaries to understand the business,” said Ezekiel Macharia, Kenbright chief actuary and managing director.

Mr Macharia said development of Information Technology (IT) systems which monitor the business will also increase.

Already, the risk-based supervision takes care of the key IFRS 17 issues, the only difference is that the solvency levels are not disclosed to the public and are only viewed by the regulator.

Under risk-based regime, companies do not hold a standard capital, but match risks.

Insolvent companies whose balance sheets look good before providing for the risks will take a hit.

However, shareholders will now be able to compare the company’s performance more transparently regardless of whether the firm is listed or not.

Life insurance will be affected more than general insurance.

Globally life insurance is larger than general insurance but in Kenya, life insurance is smaller than general insurance, but analyst says it will continue to grow as the market matures.