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New capital requirements worry insurers
Insurance firms will be required to increase their capital requirements in the new supervision model. PHOTO BY EDGAR R BATTE
What you need to know:
- According to Mr Eliaz Omondi, a World Bank consultant, the Risk Based Supervision model, will in a country like Uganda, whose penetration is only 0.8 per cent, address management inefficiencies which have characterised high leakages in the industry.
- Insurance penetration has stagnated for about a decade now.
Kampala. Insurance players have expressed concerns over new capital requirements in the new Risk Based Supervision model.
Speaking during a stakeholders’ workshop that sought to conclude the Risk Based Supervision deliberations, insurance players said the need to recapitalise will have far reaching implications to the industry.
“You are saying, if I am capitalised at 100 per cent, I have to double to 200 per cent. If you were seated in the shoes of the shareholders, the expectation would be double the return,” a participant from UAP Old Mutual, said adding that the analogy is easier said than done.
Contrary to the compliance-based supervision model, under which insurers were formerly supervised, insurance players will this year heed to the new Risk Based Supervision.
The Risk Based Supervision model was introduced after overhauling the Insurance Act of 2017 which places strong emphasis on understanding and assessing the adequacy of each financial institution’s risk management system to identify, measure, monitor and control risk in an appropriate and timely manner.
According to Mr Ivan Kilameri, an actuary at Insurance Regulatory Authority (IRA), the proposed minimum capital requirements of general insurers will increase to Shs6b from 4b, life insurers to Shs4.5b from Shs3b while general re-insurers will move up to Shs9b. Life reinsurers will move up to Shs6b.
The increments are premised on ensuring that policy holders are not inconvenienced by poorly capitalised companies, especially when settling claims.
The Risk Based Supervision model serves to adequately capitalise insurers for big risks such as infrastructure and oil and gas related investments.
Mr Kaddunabbi Lubega, the IRA chief executive officer, said new entrants will be required to put in place working capital to avoid eroding minimum capital levels due to the business strain in the initial years.
Mr Kilameri also revealed that six non-life companies, three life companies and all Health Membership Organisations will be required to capitalise under the new model.
