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Insurer’s minimum capital requirement goes up

The move could see major mergers and acquisitions

Kampala, Uganda | ISAAC KHISA | Uganda’s insurance regulator has increased the minimum capital requirements for insurers, a move that is intended to strengthen their capacity to handle risks.

The Insurance Regulatory Authority of Uganda requires insurers to boost their capital in the next five years, according to its Chief Executive Officer, Ibrahim Kaddunabi Lubega.

Non-life insurers will now be required to boost their capital to Shs 6bn from Shs 4billion, while life insurers will pay Shs 4.5bn from Shs 3bn.

Health Membership Organisations that among others includes Case Medical Centre, St. Catherine’s Clinic, AAR and IAA will double their minimum requirement to Shs 1bn.

The re-insurance firms are now required to have Shs 9bn and Shs 6bn as minimum capital for those dealing in Non-life and life respectively compared with the previous Shs10bn for either of the re-insurers.

This is the second time that the IRA-U is raising the minimal capital requirements for insurers in a period of five years.

In 2013, IRA-U raised the minimum capital requirements from Shs 1bn to Shs 3bn for life and Shs 1bn to Shs 4 billion for non-life.

Ivan Kilameri, the actuarial officer at the IRA-U told insurers during a Risk Based Supervision Workshop held on Jan. 29 in Kampala that the new dispensation in the industry means that only strong companies will remain in the market with the potential to pay the claims.

“These new capital requirements as we move to implement risk based supervision means that insurers with low capital will have to inject in more capital,” he said adding that “there is likely to be mergers and acquisitions as firms strive to meet the legal requirement.”

Kilameri said six non-life companies, three life insurers and all the five HMOs are required to inject additional capital into their operations within three years to meet the requirement.

Currently, Uganda has 31 Insurance companies, one Micro Insurance Company, one National Reinsurance Company, six HMOs and 35 Insurance brokers.

This new development comes after few years since the IRAU ordered all insurers to separate their life and non-life insurance business as part of the changing relations in the East African Community.

However, a section of insurers said the new initiatives could see firms have excess capital with limited usage. But the regulator said it is time for insurers to be vigorous and grow their business.

Earlier in an interview with The Independent, the Sanlam General Insurance, Chief Executive Officer Gary Corbit, said they were ready to implement the new capital requirements.

“We will look at the new minimum capital requirement that will be given to us. If it means that we up our capital, then, our shareholders shall exactly do that.”

Countries that have already embraced Risk Based Supervision in Africa includes; Kenya, Tanzania, Rwanda, Zambia and Malawi.

Latest data from IRA-U shows that the industry recorded an increase in premiums from Shs566.4bn for the nine months ending September, 2017 to Shs 658.4bn in 2018 driven by the increase in government investments in infrastructure, uptake of agriculture insurance and improvement in the economy.

Non-life gross written premiums increased from Shs404bn to Shs452.7bn while life gross written premiums increased from Shs120bn to Shs150.9bn during the same period under review.

Similarly, Health Membership Organisation recorded an increase in insurance premiums from Shs42bn to Shs54.79bn. Overall, the industry’s net premium earned a recorded 21.5% growth in premiums to Shs410.8bn.

In 2017, the industry registered a 16% growth in insurance premiums to Shs737billion last year, up from Shs634billion 2016. In 2016 premiums were recorded at Shs611billion. However, the insurance penetration remains at less than 1% compared with Rwanda’s 1%, Tanzania’s 2.3% and Kenya’s 3.4%.

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