Kenya’s New Insurance Law Impacts Reinsurers and Underwriting Strategies

Kenya is introducing a new law, the Policyholders Compensation Bill 2025, aimed at protecting policyholders and strengthening the country’s insurance industry. The legislation establishes a Policyholders Compensation Fund to step in when insurers face financial difficulties, ensuring claims are paid and policyholders are safeguarded. While this law primarily targets primary insurers, it also has significant implications for reinsurers operating in Kenya. Here’s what reinsurers need to know and how they can adapt their underwriting strategies. 

What This Means for Reinsurers 

More Scrutiny on Insurers

The new law enforces stricter oversight on insurers, requiring them to maintain adequate reserves and operate with stronger financial discipline. Reinsurers working with Kenyan insurers should reassess their exposure, ensuring that cedents (insurers transferring risk) are financially stable and compliant with new regulations. 

Potential Increase in Demand for Reinsurance

If insurers are required to hold higher financial reserves, they may seek more reinsurance coverage to free up capital while maintaining compliance. This could present growth opportunities for reinsurers offering strategic risk-transfer solutions. 

Possible Payment Delays in Claims Settlements

When an insurer struggles, the Policyholders Compensation Fund may step in to manage claims payments. However, this could introduce delays, affecting when and how reinsurers receive their share of claims. Reinsurers should consider adjusting contract terms to address potential pay out delays. 

Strengthened Industry Stability

While some insurers may struggle to meet the new requirements, the law aims to create a more stable and reliable insurance sector. In the long run, this benefits reinsurers by reducing the risk of insurer defaults and improving overall market confidence. 

Potential Market Consolidation

Some smaller or financially weaker insurers may merge or exit the market due to stricter compliance requirements. This could lead to fewer but stronger insurers, changing the landscape for reinsurance contracts and risk distribution. 

How Reinsurers Can Adapt Their Underwriting Strategies 

Given these changes, reinsurers should proactively adjust their underwriting strategies to mitigate risks and seize new opportunities. Here are key approaches: 

Assess the Financial Strength of Cedents

• Prioritise insurers with strong financial reserves and sound governance. 

• Use financial stress tests and risk models to evaluate an insurer’s stability. 
• Engage with cedents to understand how they are adapting to the new law. 
  
  

Expect Shifts in Risk Transfer Needs

• With insurers likely to offload more risk, structured reinsurance solutions such as quota share or loss portfolio transfers may become attractive. 
• Work with insurers to develop customised reinsurance programs that support their regulatory compliance.
   

Adjust Contract Terms for Payment Delays

• Introduce stricter claims payment timelines and consider requiring collateral to secure timely settlements. 

• Monitor how the Policyholders Compensation Fund impacts claims processing and adjust agreements accordingly.
  
  

Prepare for Market Consolidation

• Keep an eye on M&A activity among insurers to anticipate shifts in reinsurance demand. 

• Be ready to support newly merged or restructured insurers with tailored reinsurance solutions. 

Review Pricing and Retention Strategies

• As insurers transfer more risk, ensure pricing reflects increased exposure. 

• Adjust retention levels to maintain a balanced risk-reward structure. 
  
  

Stay Engaged with Regulators and Industry Leaders

• Monitor regulatory developments to stay ahead of any new compliance requirements. 

• Participate in industry discussions to help shape reinsurance best practices under the new framework. 

Kenya’s Policyholders Compensation Bill 2025 is set to reshape the country’s insurance industry, bringing both challenges and opportunities for reinsurers. While stricter oversight and new financial requirements could disrupt some insurers, they also create opportunities for reinsurers to offer valuable risk-transfer solutions and support market stability. By proactively adjusting underwriting strategies, reinsurers can navigate these changes effectively and position themselves as key partners in Kenya’s evolving insurance landscape. 

Want to Learn More? 

If you’re a reinsurer looking to understand how this law affects your business or seeking tailored reinsurance solutions, contact us today for expert insights and strategic guidance.