GAZETTE NOTICE NO. 3640

pursuant to section 3A (1) (g) of the Insurance Act and are intended to provide for mechanism of conducting independent review and reporting on the financial condition of an insurer by ensuring that there is a reliable financial reporting framework, there are clearly defined roles and responsibilities of the board, management, external auditor and appointed actuary in regard to financial reporting, there is reasonable assurance that the financial statements are free from material misstatement, whether due to fraud or error and that the insurer has an appointed actuary to give assurance on actuarial matters. Citation 1. These Guidelines may be cited as the Insurance (External Auditors and Appointed Actuaries) Guidelines, 2022. 29th March, 2022 THE KENYA GAZETTE Interpretation 2. In these Guidelines, unless the context otherwise requires— “Act” means the Insurance Act. “actuarial function” means a control function of an insurer dealing with actuarial matters; “appointed actuary” means an external and independent actuary with qualifications as indicated in section 2 of the Act; and “regulated entry” means a corporate entity registered under the Act; Application 3. These Guidelines shall apply to all corporate entities registered under the Act. Objectives 4. The purpose of these Guidelines is to ensure that— (a) there is a reliable financial reporting framework; (b) there are clearly defined roles and responsibilities of the board, management, external auditor and appointed actuary in regard to financial reporting; (c) there is reasonable assurance that the financial statements are free from material misstatement, whether due to fraud or error; and (d) the insurer has an appointed actuary to give assurance on actuarial matters. Corporate entities registered under the Act Applicable Financial Reporting Standards 5. A regulated entity shall prepare their financial statements on an annual basis and in accordance with the International Financial Reporting Standards (IFRS) or any other approved financial reporting standards which shall be audited in accordance with the International Standards on Auditing (ISA). External Auditors Appointment of External Auditor 6. (1) An insurer shall, on an annual basis, appoint an external auditor who shall be approved by the Authority. (2) An external auditor appointed under subparagraph (1) shall — (a) be a member of the Institute of Certified Public Accountants of Kenya (ICPAK) or any other professional accounting body recognized by the Authority; (b) be authorized by the Institute of Certified Public Accountants of Kenya to practice; (c) have at least five years’ experience in insurance practice; and (d) meet the fit and proper requirements specified by the Authority. Functions of the External Auditor 7. (1) An external auditor shall— (a) audit the financial statements and report to the regulated entity; (b) confirm that the financial statements have been prepared in accordance with the provisions the Act; (c) confirm the application of the assets of the statutory fund in accordance with the Act; (d) evaluate the objectivity of the actuarial reviews; (e) perform a liability adequacy test; (f) evaluate the appropriateness of the actuarial inputs into the financial statements; and (g) carry out such other duties as may be required of the auditor under the Act, Regulations and these Guidelines. (2) An insurer shall ensure that— (a) the audit partner, the audit manager and the supporting staff are not engaged for a period of more than four (4) consecutive years; (b) an audit firm shall not be engaged for a period of more than seven (7) consecutive years and the same shall not be re– engaged before expiry of a period of three (3) years. (3) The audit report shall be signed by the audit partner approved by the Authority. An Actuary Appointment of an Actury 8. An insurer shall, on an annual basis, engage an actuary who shall be the appointed actuary. Functions of the Actuary 9. (1) The appointed actuary shall— (a) meet the requirements of the Act; (b) be a fellow of The Actuarial Society of Kenya (TASK) or any other society recognized by the Authority; (c) have at least five years experience in actuarial and insurance practice; (d) meet the fit and proper requirements specified by the Authority; and (e) be approved by the Authority. (2) The appointed actuary shall, for each financial year, prepare — (a) Actuarial Valuation Report in accordance with the Act and these Guidelines; and (b) Financial Condition Report. Financial Condition Report 10. (1) The Financial Condition Report shall at a minimum contain — (a) a declaration that the actuary’s reporting has been prepared in accordance with the Guidelines and actuarial principles; (b) a statement on the consistency, completeness and accuracy of the information used in the preparation of the financial condition report; (c) a statement on the insurer’s governance structure; (d) a statement of business plans, performance and projections; (e) an analysis of past financial performance and deviations from the projected performance for the last three (3) years; (f) an analysis of the adequacy of technical provisions for the last three (3) years; (g) a statement on the premium adequacy, pricing and material issues arising from the insurer’s pricing processes, underwriting and claim management practices; (h) an analysis on the adequacy of the asset and liability management of the insurer; (i) a review of the insurer’s capital management strategy; (j) a review of the adequacy of an insurer’s reinsurance strategy and arrangements for the last three (3) years; (k) a review of the insurer’s risk profile and the effectiveness of the risk management framework (l) recommendations in respect of issues identified during the assessment of the financial condition of the insurer; (m) a statement on the extent to which the insurer has addressed the recommendations provided in the financial condition report of the previous year; and (n) any other information as may be required of the appointed actuary under the Act, Regulations and these Guidelines. 5:45 PM THE KENYA GAZETTE 29th March, 2022 1732 1732 (2) The Actuarial Valuation Report and the Financial Condition Report shall be signed off by— (a) the appointed actuary; (b) two (2) directors; and (c) the principal officer. General requirements Independence 11. A regulated entity shall ensure that the external auditor and the appointed actuary are independent and have no conflict of interest. Submission of Independence Declaration Forms 12. A regulated entity shall submit the fit and proper Form and independence declaration Form as may be specified by the Authority to be completed by the external auditor and the appointed actuary on an annual basis when seeking approval for their appointment. Notification of Impairment of Independence 13. (1) A regulated entity shall in writing notify the Authority within seven days of any circumstance that may impair the independence, fitness and propriety of the external auditor or the appointed actuary. (2) A regulated entity shall within seven days notify the Authority of the resignation or replacement of an external auditor or the appointed actuary and give reasons for the resignation or replacement. (3) A regulated entity may be required to replace an external auditor or an appointed actuary when the external auditor or the appointed actuary fails to adequately perform their functions, is subject to conflict of interest or no longer meets the eligibility requirements. (4) The external auditor and appointed actuary shall within seven (7) days, of becoming aware of any breach, report to the Authority in circumstances where the insurer has breached or its directors may have contravened the Act or any other law where the contravention may prejudice the interests of policyholders, or is likely to breach capital adequacy requirements. (5) Where such a report is made directly to the Authority, the appointed actuary is not under any obligation to disclose this to the management and board of the insurer if— (a) considers that by doing so the interests of policyholders may be jeopardized; or (b) has lost confidence in the board or management of the insurer. Responsibilities of the Board 14. (1) The board of a regulated entity shall carry out the following functions— (a) design and implement an effective financial reporting system; (b) prepare the entity’s financial statements in accordance with the approved financial reporting framework; (c) oversee the audit and actuarial processes and review both the audit and actuarial plans and address the material findings; (d) oversee the processes for hiring, removing and assessing the performance and independence of the external auditor and appointed actuary; (e) facilitate provision of relevant information to the appointed actuary; and (f) be accessible to the appointed actuary. (2) The board of a regulated entity shall safeguard and promote an effective relationship with the external auditor and the appointed actuary by ensuring that— (a) the terms of engagement of the external auditor and the appointed actuary are clear and appropriate to the scope of these functions and resources required to perform the functions and specify the level fees to be paid; (b) the tasks are performed in accordance with the terms of the engagement and the relevant guiding principles; (c) there are adequate policies and processes to ensure the independence, periodic rotation, ethical and professional standards of these functions; (d) there is adequate dialogue with the external auditor and appointed actuary on the scope and timing of the functions; (e) there is sufficient access by the external auditor and appointed actuary to information and persons within the entity as necessary to perform the functions; and (f) there is an evaluation of the effectiveness of the audit and actuarial processes at the end of the reporting cycle. Reporting Requirements 15. A regulated entity shall submit for each financial year, reports as prescribed in the Act and as the Authority may require from time to time. Enforcement 16. Where the Authority determines non–compliance with the provisions of these Guidelines, it may take any intervention prescribed in the Act including— (a) prohibiting the regulated entity from declaring and paying dividends; (b) declaring that a person may not take the office of external auditor or appointed actuary; (c) revoking the approval of external auditor or appointed actuary; (d) reporting any misconduct by the officers involved in the audit or actuarial review to the relevant professional body; (e) rejecting an audit or actuarial report, and require the regulated entity to commission another audit or actuarial valuation at the expense of the regulated entity; (f) directing the entity to take appropriate remedial action; (g) imposing additional reporting requirements and monitoring activities; and (h) withdrawing or imposing conditions on the business license taking into account the nature of the breach. ABDIRAHIN ABDI, Chairperson, Insurance Regulatory Authority. GEOFREY KIPTUM, Chief Executive Officer and Commissioner of Insurance, Insurance Regulatory Authority.