Directors of a UK-based insurance solutions provider that acquired a majority stake in the now under statutory management Kenyan underwriter, Resolution Insurance, now say insurance regulations in the east African country are making acquisitions unattractive.
Linkham Services co-director Michael Cranfield alongside his partner Dominic Persad said Kenya’s insurance regulators need to rethink the clause barring holders of at least 20% stake from having executive powers.
This, they said, reduced them to “flower girls” even as Resolution Insurance – once famous for health underwriting – in which Linkam holds a 62.8% stake, slipped into statutory management.
Linkham in March 2021 acquired the entire stake of Leapfrog Investments but its directors said they did not realise the “strange” law that limited what a majority shareholder could do in an insurer. Resolution was placed under statutory management in April 2022 as it struggled to honour claims.
Mr Cranfield said their level of intervention on key management matters was limited and this has put at risk their $3m (KSH348m) investment in the company.
“This is strange. The law as it stands precludes you from the day-to-day activities. It is frustrating. As a shareholder especially in such a complex business, you have got to get involved,” said Mr Cranfield.
“It (the law) will discourage those investors that are not large corporates. It will disincentivise small and lean companies seeking to invest in insurance companies here.”
The Kenyan Insurance Act 2020 bars one from being appointed as an executive director, managing director, principal officer or any other senior management official of an insurer if such a person directly or indirectly controls more than a 20% stake.
Linkham, with 62.8%, therefore found itself with a controlling stake that could not give it influence in a loss-making insurer that it acquired from Leapfrog Investment, with an intention to turn it around.
Working around this 20%t limitation requires a nod from Kenya’s National Treasury cabinet secretary.
But this exception, which allows those with more than a 20% stake to get into executive positions, is only at the cabinet secretary’s discretion and is usually for a limited period, if granted.
“If we can’t have day-to-day involvement in the company, then there’s no point because we need to understand at granular level what is happening so as to fix it,” said Mr Cranfield.
“Going forward, if we are told that there’s another Resolution in flames, we can only buy in if we are given a window of, say, at least two years to work from the inside.”
Resolution returned an underwriting loss of KSH457.32m in the financial year ended December 2021, as 11 of its 12 classes of insurance posted losses.
The firm had in 2020 failed to submit its audited financial report to the Insurance Regulatory Authority – Kenya’s regulator of insurance business – and was hit with KSH3.2m fine.
Mr Cranfield said Linkham has been forced to rely on management committees but has faced resistance in getting crucial documents that could have helped in making key decisions.
Resolution was founded by businessman Peter Nduati in 2002, as the first company to be registered as an exclusive medical insurance provider in the east African nation.
The firm rebrandedin 2013 from Resolution Health to Resolution Insurance, as it branched into other classes of insurance such as motor.