Uganda's National Insurance Company can no longer underwrite life assurance after the industry regulator denied it an operating licence for the segment.

Until recently NIC, which is listed on the Uganda Stock Exchange, was a composite company offering both life and non-life insurance. But Uganda’s Insurance Regulatory Authority announced last year that all composite companies would have to demerge by September 2.

NIC, along with four other composite insurance companies applied to IRA for a second license. Only NIC failed to get the licence while Britam, the other composite company, decided to only operate non-life.

According to officials at IRA, NIC failed to meet the licensing procedures for owning both the life and non-life insurance companies. IRA spokesperson Mariam Nalunkuma said that as a result, NIC was advised to run only the non-life company for now.  

The company is however allowed to keep the life assurance policies it has already written until a licence is given.

“IRA has advised NIC to stop underwriting the life business because they have not yet fulfilled all the licensing requirements,” she said.

The requirements include making a 10 per cent security deposit of the company’s minimum capital requirement with Bank of Uganda, something that could have become problematic for NIC at the time of applying for a licence.

READ: Ugandan insurers banking on liberalisation of pension sector

IRA first assessed NIC at the end of September, and the company did not have the Ush3 billion ($1.1 million) minimum capital requirement for a licence to run life assurance. NIC was also expected to have another Ush4 billion ($1.4 million) for its non-life business since it had been running both.

Without all this money, NIC was directed to run only one segment and it chose to retain non-life insurance, from which the company collected Ush8.7 billion ($3.2 million) in premiums last year. From the life segment, NIC collected Ush1.8 billion ($670,095) over the same period.

But Pamela Abonyo, senior manager corporate communications  at NIC pointed out that up until September her company deserved the life assurance licence as well, since the minimum capital requirement at the time was Ush1 billion ($368,854) for life assurance and another Ush1 billion ($368,854) for non-life.

But even after the minimum capital requirement was increased, steps were taken to meet the regulator’s guidelines. “NIC met the capitalisation deadline when the total paid-up capital was increased from Ush3.0 billion ($1.1 million) to Ush7.1 billion ($2.6 million) all which took us above the statutory limit,” she said.

Ms Abonyo explained that the money was raised after NIC issued 819,661,942 bonus shares on October 3. She added that since the Uganda Capital Markets Authority had no problem with what the money was going to do, IRA should not have a problem either.

IRA set new capitalisation guidelines that now require companies to increase their minimum capital requirement from Ush1 billion ($368,854) to Ush3 billion ($1.1 million) for life assurance by the end of October. Companies running non-life insurance were also required to increase their share capital by 300 per cent from Ush1 billion ($368,854) by the end of October.

Criticism of IRA

Ms Nalunkuma said that IRA could not give a licence in September and then go back in October to find out whether the said companies had complied with the new minimum capital requirement. She insisted that NIC has not met all the guidelines yet.

“IRA has been and is still engaging NIC to see to it that it meets the requirements and get the life business operational. But remember, life is long term, so licensing may take time,” she says.  

IRA has been criticised by some players who argue that the increase in minimum capital requirement is not commensurate with the size of Uganda’s insurance sector.

Allan Mafabi, Britam’s chief executive officer, said the increase by IRA of the minimum capital requirement could make insurance in the country expensive and unprofitable. Mr Mafabi points out that IRA has increased the capital requirement in a market that collects less than 1 per cent of Uganda’s $22 billion gross domestic product.

Demerging in this case means raising operating capital for the different companies, not sharing employees under any circumstances, operating offices independent of each other, using different auditors and not having the same board.

Mr Mafabi points out that IRA has increased the capital requirement in a market that just collects less than 1 per cent of Uganda’s $22 billion gross domestic product.