A. THE INSURANCE ACT , CAP 487

The following are the amendments proposed

THE PROVINCIAL COLLECTION OF TAXES AND DUTIES ACT CAP 415
INSURANCE (AMMENDMENT) REGULATIONS 2009

The Insurance (Amendment) Regulations, 2009 took effect on 12th June, 2009 as follows:-

1. Deposits for Insurers registration
The Insurance Regulations have been amended by inserting a new regulation 7A immediately after regulation (7) which now provides that deposits required to be kept with central bank of Kenya by an insurer applying for registration under Section 32 of the Act shall be under lien of the Insurance Regulatory Authority.

2. Bank Guarantee for Brokers
Regulation 39 which deals with bank guarantees for brokers registration previously stated that such amounts shall be held by the Commissioner. The regulation is amended to substitute the word "Commissioner" with "Authority"

3. Payment of Fees By members of the Industry
Regulation 49 is now amended .The payment of fees by members of the industry upon registration or renewal of registration which is paid by bankers Cheque shall now be paid to the Insurance Regulatory Authority and not the Permanent Secretary Treasury as was previously the case.

4. Insurance training Levy
Under Regulation 51 the monthly insurance training levy has been reduced from 1.5% to 1%.

5. IRA Logo
The twenty second schedule which is the prescribed form used for purposes of registration as an insurer is amended by deleting the National Coat of Arms and the words Republic of Kenya and substituting the same with the IRA logo.

Under the Insurance Act Cap 487, the following amendments were proposed in the Finance Bill 2009 to take effect on 1st January 2010:-

1. Minimum Capital Requirements
Section 23 on Minimum Capital Requirements and shareholding by Kenyan Citizens has been amended to restrict the management of insurance companies by persons owning more than 25% shares. Persons who own more than 20% cannot be Executive Directors, Managing Directors, Principal officers or senior managers.

Members whose companies are foreign owned or are listed on the stock exchange have raised issue with this amendment claiming that it will affect their shareholding. Their proposal is highlighted at the end of this write up.

2. Margin of Solvency
Section 41 on Solvency Margins is amended at subsection (8). This proviso was inconsistent with Section 50(10) following the amendment introduced last year to relax investment limits for both long and short term business by allowing insurers to invest up to 10% of their total admitted assets in one company or group of companies. A new proviso has been introduced i.e Section 41(8)(b) which reads “ Investments of a general insurance business in a company or a group of companies which is a bank or financial institution or group of banks or financial institutions shall pursuant to section 50(10) not exceed ten percent

This proposal to amend Section 41(8) only takes into consideration general insurance business and is in conflict with Section 50(10) whose intention is to accommodate both general insurance and long term insurance businesses.

It is therefore proposed to redraft Section 41(8)(b) to read as follows:-

Investments of a general insurance business or long term insurance business in a company or a group of companies which is a bank or a financial institution, or a group of banks or financial institutions shall, pursuant to section 50(10), not exceed ten percent.

3. Insurance Cover Upon Change of Ownership
A new section 76(A) is introduced which touches on insurance cover upon change of ownership of a motor vehicle. Under this section an insurer can only issue a temporary policy for a period not exceeding three months pending registration of the motor vehicle in the name of the new owner. After that period of three months an insurer cannot issue any further cover unless the new owner is able to provide proof of registration.

4. Expiry and Renewal of Registration
Section 188 on expiry and renewal of registration is amended at subsection (2) where an application for renewal or registration shall now be made on or before 30th September of the preceding year as opposed to 30th November.

5. Settlement of Claims
Section 203 of the Act is amended at Subsection (3) to provide for the payment of a five percent penalty for any amounts that remains unpaid in respect of a claim within ninety days of the date of reporting the claim or where the determination of liability is by court, then within ninety days of such determination prescribed under subsection (1).

B. AMENDMENTS PROPOSED TO OTHER STATUTES

i) INCOME TAX ACT, CAP 470 - SECTION 19 ON TAXATION OF LIFE INSURANCE

Section 19 (5) of the Income Tax Act Currently provides for Taxation of Life Insurance as follows:
The gains or profits for a year of income from the long term insurance business of a resident insurance company, whether mutual or proprietary, shall be the sum of the following -
(a) the amount of actuarial surplus, as determined under the Insurance Act and recommended by the actuary to be transferred from the life fund for the benefit of shareholders and policyholders; and
(b) any other amounts transferred from the life fund for the benefit of shareholders; and
(c) thirty per centum of management expenses and commissions that are in excess of the maximum amounts allowed by the Insurance Act.
(5A) Where the actuarial valuation of the life fund results in a deficit for a year of income and the shareholders are required to inject money into the lift fund, the amount of money so transferred shall be treated as a negative transfer for the purposes of subsection (5)(a);
Provided that the amount of negative transfer shall be limited to the actuarial surplus recommended by the actuary to be transferred from the life fund for the benefit of shareholders in previous years of income.
(6) The gains or profits for a year of income from the long term insurance business of a non â€"resident insurance company whether mutual or proprietary, shall be the amount arrived at after:-
(a) the same proportion of the amount of actuarial surplus recommended by the actuary to be transferred to the shareholders and policyholders as the actuarial liability in respect of its long term insurance business in Kenya bears to the actuarial liability in respect of its total long term insurance business; and
(b) the same proportion of any other amounts transferred from the life fund for the benefit of shareholders as the actuarial liability in respect of its long term insurance business in Kenya bears to the actual liability in respect of its total long term insurance business; and
the same proportion of thirty percent of management expenses and commissions that are in excess of the maximum amounts allowed by the Insurance Act as the actuarial liability in respect of its long term insurance business.
6A) Where the actuarial valuation of the life fund results in a deficit for a year of income and the shareholders are required to inject money into the life fund, the proportionate amount of the money so transferred shall be treated as a negative transfer for the purposes of section 6(a):
Provided that the amount of negative transfers shall be limited to the amount of actuarial surplus recommended by the actuary to be transferred from the life fund for the benefit of the shareholders in the previous years on income.
In the Finance Bill 2009, it is proposed to amend section 19 of the Income Tax Act as follows:
Section 19 of the Income Tax Act is amended -
(a) in subsection (5), by deleting paragraph (a) and substituting therefor the following new paragraph

(a) the amount of actuarial surplus, as determined under the Insurance Act and recommended by the actuary to be transferred from the life fund for the benefit of shareholders and policy holders.

(b) in subsection (5A) by deleting the proviso and substituting therefor the following new proviso -

“Provided that the amount of negative transfer shall be limited to the actuarial surplus recommended by the actuary to be transferred from the life fund for the benefit of shareholders in previous years of income.

(c) in subsection (6), by deleting paragraph (a) and substituting therefor the following new paragraph -

(a) the same proportion of the amount of actuarial surplus recommended by the actuary to be transferred to the shareholders and policy holders as the actuarial liability in respect of its long term insurance business in Kenya bears to the actuarial liability in respect of its total long term insurance business; and

(d) in subsection (6A), by deleting the proviso and substituting therefore the following new proviso -

“Provided that the amount of negative transfers shall be limited to the amount of actuarial surplus recommended by the actuary to be transferred from the life fund for the benefit of the shareholders in the previous years on income.

ii) THE INSURANCE (MOTOR VEHICLE THIRD PARTY RISKS) ACT CAP 405

The Finance Bill 2009 has proposed the deletion of Section 10(5) effective 1st January 2010. Section 10 (5) compelled insurers to pay amounts over and above the recently introduced statutory limit of Kshs 3 million for judgments in respect of third party liability claims and recover such amounts from the policy holders.

Section 10(5) of Cap 405 provides as follows:
“ If the amount which an insurer becomes liable under this section to pay in respect of a liability of a person insured by a policy exceeds the amount for which he would apart from the provisions of this section be liable under the policy in respect of that liability, he shall be entitled to recover the excess from that person

This section provides that in the event of a declaratory suit being filed against the insurance company to recover any amounts over and above Kshs 3 million, the law provides that the insurer pay and then recover the excess from his insured.

This proviso was found to be inconsistent with the amendment to section 5 (iv) passed in January, 2007 introducing a cap on liability for third Party claims at a maximum of Kshs 3 million. It was therefore recommended that Section 10(5) be deleted. Further Insurers it was noted that insurers have in the past found it difficult to recover the excess amounts paid over and above the statutory limit prescribed from their insured’s hence they should not be compelled to pay amounts over and above Kshs 3 million.

iii) .THE TRAFFIC ACT, CAP 403,

The following amendments are proposed in the Finance Bill 2009 with an effective date of 1st January 2010.

• Section 6(1A) of the Traffic Act on registration of motor vehicles and trailers is amended to provide that a vehicle imported for home use must be registered. A commercial vehicle which requires inspection shall be inspected and registered within 30 days of its release by customs as opposed to fourteen (14) days previously.
• Section 98(4) of the Traffic Act on licensing of drivers and conductors is amended to provide that a license to drive or act as a conductor for a Public Service Vehicle shall be valid for a period of one year as opposed to two years previously from the date of issue.

AMEMDMENT PROPOSED TO SECTION 23 OF THE INSURANCE ACT,
WHAT APPEARS IN THE INSURANCE ACT CURRENTLY.
1. No person shall be registered as an insurer or if registered shall have his registration renewed unless he meets the minimum capital requirements specified in the schedule.
2. The Minister may, by order published in the Gazette, amend the schedule.

3. Every order made under this section or under section 28 shall be laid before the National Assembly without unreasonable delay and unless a resolution approving the order is passed by the Assembly within twenty days on which it next sits after the order is laid, it shall henceforth be void by without prejudice to anything previously done thereunder or to the issuing of a new order.
4. Out of the amount of the paid-up capital under subsection (1), not less than one third shall be owned by Kenya citizens or by a partnership whose partners are all citizens of Kenya or wholly owned by citizens of Kenya or is wholly owned by the Government.
5. A registered insurer who permits his paid-up capital to fall below the minimum prescribed under subsection (1) commits an offence and is liable on conviction to a penalty of one hundred thousand shillings and if an

offence is a continuing one, to a further fine of five thousand shillings for every day during which the offence continues.
6. Notwithstanding any other penalty imposed under this section, the convicted insurer shall be liable to having its registration cancelled.

WHAT HAS BEEN PROPOSED UNDER THE FINANCE BILL, 2009
Section 23 of the Insurance Act is amended by inserting the following new subsections immediately after subsection (4)-

(4A). No person shall-

(a) control, or be beneficially entitled, directly or indirectly, to more than twenty-five per cent of the listed share capital or voting rights of an insurer;
or
(b) be entitled to appoint more than twenty-five per cent of the aggregate dividends of an insurer in any given financial year:
(c) be entitled to receive more than twenty-five per cent of the aggregate dividends of an insurer in any given financial year:
Provided that this subsection shall not apply to-
(i) a corporate entity licensed by an insurance, banking, pensions or securities regulator in Kenya;
or
(ii) a foreign corporate entity licensed by an insurance, banking, pensions or securities regulator in its country of origin; or
(iii) the Government of Kenya; or
(iv) a state corporation within the meaning of the State Corporations Act.
(4B) No person shall be appointed as an executive director, managing director, principal officer or other senior management official of an insurer if such person-
(a) controls, or is beneficially entitled, directly or indirectly, to more than twenty per cent of the listed share capital or voting rights of the insurer; or
(b) is entitled to appoint more than twenty per cent of the Board of Directors of the insurers; or
(c) is entitled to receive more than twenty per cent of the aggregate dividends of the insurer in any given financial year.
(4C) A person who, at the commencement of subsections (4A) and (4B), holds any right, interest or office in an insurer contrary to the provisions of those subsections, shall comply with the requirements thereof by 31st December 2010.

AMENDMENT PROPOSED BY SOME MEMBERS THROUGH A LEGAL OPINION:-

Section 23 of the Insurance Act is amended by:
1. deleting sub-section (4) and substituting with the following:
(4) Unless the insurer shall be a company whose shares are listed on a licensed stock exchange in Kenya , an aggregate of not less than one third of the issued share capital of the insurer shall be owned directly or indirectly by Kenya citizens, by a partnership all of whose partners are citizens of Kenya, a company which: shall either be wholly owned directly or indirectly by citizens of Kenya or is wholly owned by the Government or is a State Corporation within the meaning of the State Corporations Act or is a company whose or whose holding company’s shares are listed on a licensed stock exchange ( in Kenya? ).

2. inserting the following new sub-section immediately after sub-section 4.
(4 A) No person shall:
(a) control or be beneficially entitled directly or indirectly to more than 25% of the issued share capital or voting rights of an insurer or
(b) be entitled to appoint more than 25% of the persons comprising the board of directors of an insurer or
(c) be entitled to receive more than 25% of the total dividends payable by an insurer in any financial year:
Provided that this sub-section shall not apply to
An insurer whose shares are listed on a licensed stock exchange,
(i) Any shareholder being a company licensed by any insurance, banking, pensions or securities regulator in Kenya or
(ii) Any shareholder being a company which is a subsidiary of any company who or whose ultimate holding company shall be licensed by an insurance, banking, pension or securities regulator in its country of incorporation.
(iii) Any shareholder whose shares are listed on a licensed stock exchange
(iv) The Government of Kenya or the Government of a foreign sovereign state.
(v) A State Corporation within the meaning of the State Corporations Act.

(4 B) No person shall be appointed as an executive director or principal officer of an insurer if such person:
(a) controls or is beneficially entitled directly or indirectly to more than 25% of the issued share capital or voting rights of the insurer or
(b) is entitled to appoint more than 20% of the persons comprising the board of directors of the insurer or
(c) is entitled to receive more than 25% of the aggregate dividends payable by an insurer in any given financial year.
Provided that this sub-section shall not apply to any executive director or principal officer appointed by:
(i) Any shareholder being a company licensed by any insurance, banking, pensions or securities regulator in Kenya or
(ii) Any shareholder being a company which is a subsidiary of any company who or whose ultimate holding company shall be licensed by an insurance, banking, pension or securities regulator in its country of incorporation.
(iii) Any shareholder whose shares are listed on a licensed stock exchange
(iv) The Government of Kenya or the Government of a foreign sovereign state.
(v) A State Corporation within the meaning of the State Corporations Act.
(4 C) A person who at the commencement of sub-sections (4 A) and (4 B) holds any right or interest or office in an insurer contrary to the provisions of those sub-sections shall comply with the requirements thereof by the 31st December, 2010.
3. Inserting the following new sub -section immediately after sub-section (6):
(7) An insurer may upon request require any shareholder to disclose to the insurer the full particulars of the person(s) being the ultimate beneficial owner(s) of the shares and if a company its beneficial owners or its the ultimate holding company and its beneficial owners as the case may be. Iin default of the provision of such information by the shareholder the insurer may disenfranchise such shareholder from all its rights to vote or participate at any general meeting of shareholders of the insurer , receive any dividend payable by the insurer and such a shareholder shall not be entitled to transfer or otherwise deal with any interest in its shareholding in the insurer until it shall have complied with such request .

ACCORDING TO THE MEMBERS VIEWS, THESE AMENDMENTS ARE INTENDED TO ACHIEVE THE FOLLOWING:-
1. Qualify the One third Kenyan ownership rule ( Clause 1) , thereby permitting e.g. JHL's ownership of JICK as a 100% subsidiary and if deletion of the words 'in Kenya" is accepted OMH's ownership of OMLAK .

2, Restrict shareholdings to no more than 25% except in a now extended list of exceptions which provides for a look through any corporate shareholding to status of any holding company e.g. of OM & BRITAK . and any listed status of the shareholder e.g. JHL

3. Enable insurers to establish the status of shareholders to facilitate compliance ( similar provisions could/ should be included in the Articles of Association of the Insurer , as for some listed companies )