Kenya:Compulsory reinsurance cessions to Kenya Re to rise to 25% in 2027

Kenya's Insurance Regulatory Authority (IRA) has increased mandatory reinsurance cessions to Kenya Reinsurance Corporation (Kenya Re) from 20% to 25%, to be implemented in 2027.

In a circular signed by IRA CEO and Commissioner of Insurance Mr Godfrey Kiptum, the regulator also urged insurers, microinsurers, reinsurers and reinsurance brokers to comply with the following

1. Insurers are required to ensure that all reinsurance treaties in respect of long-term insurance business written in Kenya are locally placed.

2. Companies are reminded that failure to pay reinsurance premiums has the effect of voiding the reinsurance contracts. In this regard, insurers are required to provide proof of settlement of reinsurance balances up to the second quarter of the year 2026 or an agreed payment plan with reinsurers while submitting their reinsurance arrangements for the year 2027.

3. Avoid over-concentration by placing more than 50% proportion of a risk with a single reinsurer or provide justification for the placement.

4. Declinature letters (if any) on mandatory cessions should be signed by the Principal Officer of the concerned reinsurer.

5. Ensure that retention limits for each treaty are not too low or too high depending on the current financial position and risk appetite of an insurer.

6. All facultative placements, both local and overseas, shall be shared with the Authority before placement.

7. Ensure exhaustion of the local capacity by arranging reinsurance programs with local reinsurers before seeking approval to reinsure with foreign reinsurers.

8. The approval of the reinsurance treaties is issued strictly for regulatory compliance and shall not be used by the insurer for business acquisition purposes.

The completed reinsurance arrangements should be accompanied by an actuarial certificate/report on the adequacy and contractual certainty of the reinsurance contracts. Insurers will not be allowed to write any new business effective 1 January 2027 if their reinsurance arrangements are not approved before that date.

Non-compliance

The IRA noted with concern that some companies fail to adhere to requirements outlined in previous circulars.

The areas of non-compliance identified include, but are not limited to:

1. Late submission of reinsurance arrangements for approval by the Authority as required under the Act
2. Insurers entering into reinsurance arrangements with lowly rated or unrated reinsurers
3. Arranging reinsurance programmes through reinsurance brokers who are unregulated and not registered under the Insurance Act and have no physical presence in the Kenyan market
4. Placement of Kenyan risks overseas with foreign reinsurers not registered under the Insurance Act.