Kenya Reinsurance Corporation (Kenya Re) is poised for higher revenues following the gazettement of new regulations requiring insurers to cede a quarter of their general insurance business to the reinsurer.
Under the recently gazetted Insurance (Amendment) Regulations, the proportion of general insurance business that insurers operating in Kenya must reinsurer with Kenya Re has been increased to 25 percent from 20 percent.
‘The regulations have been amended to increase the mandatory placement from 20 percent to 25 percent of general insurance reinsurance business with the Kenya Re,’ said Tom Gichuhi, Association of Kenya Insurers CEO, in a circular dated April 30.
‘Accordingly, all insurers are now required to reinsure 25 percent of their general insurance business with Kenya Re. This requirement shall cease to apply on the date the Kenya Reinsurance Corporation Limited is privatised.’
The move marks a departure from the previous practice in which the reinsurer has been reapplying for the mandatory cession each year.
The changes will offer a boost to Kenya Re’s insurance revenue, with the amount having dropped for the third straight year to Sh17.07 billion in 2025 from Sh18.85 billion in the previous year. Insurance revenue peaked at Sh23.13 billion in 2022.
Insurance companies make money by assuming risks of certain unlikely events such as fires, accidents, or floods in exchange for a premium. However, when assuming such risks, they are obligated to ensure the maximum payouts in case the risks crystallise do not bankrupt them.
Cession therefore allows insurers to reduce their risks by passing on some of them to the reinsurance market as well as a portion of the profits. The 25 percent compulsory cession will mean a quarter of these risks must be placed with Kenya Re.
Treasury said the changes will provide a ‘clearer and more orderly’ framework and ensure higher local retention of premiums, potentially faster recoveries on domestic catastrophic losses and moderated foreign exchange outflows on outward placements of business.
In addition, Treasury said the higher cession will boost Kenya Re’s revenues and boost its dividend capacity over time, subject to capital needs.
However, the industry says Kenya should not have taken this move given that it is a liberal economy with other reinsurers such as Continental Re, Ghana Rei, Waica Rei and Zep-Re.
‘This is a retrogressive move. There is talk about premium protection, but you cannot claim to operate in a liberalised market while introducing such measures,’ said Gichuhi.
Ashok Shah, CEO at APA Apollo Group, warned that the move will lead to risk concentration and also distort competition.
‘Insurance is about spreading risk, not concentrating it in one entity. Mandatory cession restricts the industry because insurers can get better terms from other reinsurers. It is not going to be a level playing ground,’ he said.
Britam Group chief executive Tom Gitogo said the market should be cutting the compulsory cessions to boost insurance uptake through progressive policies that attract investment and quality underwriting services.
‘I believe it is a move in the wrong direction. We should be reducing the mandatory cessions, not increasing. Kenya Re should compete for business the way other reinsurers are doing through offering high quality services,’ he said.