The Finance Act, 2008 was given assent on the 15th of December, 2008.
Various issues arose in the Finance Act touching on the insurance industry that came into effect effective 1st of January, 2009 as follows:-
Section 50(10) has been amended. The investment limits for both long term and general insurance business have been relaxed. Insurers can invest up to 10% of their total admitted assets in one company or group of companies, up from 5%.
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Under Section 93, providers of annuity products and other insurance investment products are now be required to publish information regarding such annuities and other products on a quarterly basis in a manner specified by the Commissioner.
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Section 179 of the Insurance Act is amended. It provides for the protection of the policyholders by providing compensation for the policyholders of any insurer wound up where the court is satisfied that they have sufficient grounds to justify the winding up petition.
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It is further amended to include the Permanent Secretary to the Treasury or a person deputed by him in writing as a member of the Board, administering the policyholders’ compensation fund.
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Section 203 has been amended. Insurance companies are required to settle claims within 90 days after liability has been determined by a Court, failure to which the IRA will levy a penalty of 5% on the outstanding amounts. Inability to pay claims plus interest will result in winding up of the company.
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A new Section 204 has been introduced giving the Attorney General powers to appoint public prosecutors for the purposes of handling any matters of a criminal nature arising under the Act
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Amendment to Section 19 Income Tax Act, Cap 470 on Taxation of Long Term insurance business.
The gains and profits from long term insurance business shall be the sum of:
i) The actuarial surplus recommended by the actuary to be transferred from the life fund to the shareholders,
whether transferred or not;
ii) Any other amount transferred from the life fund for the benefit of shareholders and
iii) 30% of the management expenses and commissions that is in excess of the maximum provided for under
the Insurance Act.
In case of an actuarial deficit, the shareholders are required to inject more capital into the life fund and the amount transferred shall be treated as a negative transfer. This will be limited to the amount of actuarial surplus recommended by the actuary to be transferred from the life fund to the shareholders’ fund in previous years of income.
This provision was found to have some flaws. AKI engaged the services of PriceWaterhouse coopers to lobby KRA, Ministry for Finance and the Parliamentary Committee on Finance. However the lobby efforts were not successful. The issue will be revisited this year.
