Adequacy of Minimal Capital Requirements for Life Insurance Companies in Kenya

Abstract

Purpose: The study sought to examine the challenges and strategic responses of Life Insurance Companies in Kenya to the minimum capital requirements. The study was guided by the following specific objectives: to evaluate the adequacy of the proposed minimum capital requirements given the higher risk environment that Insurance Companies are operating within; and to analyse the challenges posed by minimum capitalization and the strategic responses employed by the Life Insurance Companies in Kenya.Methodology: The study focused on all the Life Insurance companies in Kenya, the study respondents being the Chief Executive Officers, who are charged with the responsibility of charting the strategic direction of the respective Life Insurance companies. A case study design was used with a questionnaire as the main data collection tool. In addition, personal interviews were used, guided by an interview schedule. The data was analyzed by employing descriptive statistics such as frequencies, mean scores and standard deviations. Results: The findings of the study show that despite the increase in minimum capital requirement for the various categories of insurance companies, the minimum required capital amounts still fell far below expectations and higher figures were suggested. Indeed the increase in minimal capital requirements had not had a significant effect on the business of the life insurance companies. There is thus need to involve all industry stakeholders in order to arrive at minimum capital requirements that would be agreeable to all, for enhanced effectiveness in the industry. Based on findings of the study, there should be enhanced disclosure of financial information by Insurance companies such that the public will have greater access to information about the financial stability of insurers. The industry regulators should ensure that competition resulting from solvency will force insurers to comply with quality and security standards.

Keywords: Adequacy, Minimal capital requirements, Life Insurance Companies