NAIROBI, KENYA – The National Treasury has unveiled stringent new draft regulations aimed at bolstering corporate governance within Kenya’s multi-billion shilling insurance industry by imposing mandatory term limits on external auditors. The proposed Insurance (External Auditors and Appointed Actuaries) Regulations, 2025, seek to cap the tenure of an audit firm serving a single insurer at a maximum of eight consecutive years, according to a report by the Nation Media Group on Monday, 27 October 2025. Once this term expires, the audit firm will be barred from re-engagement with the same insurer for a cooling-off period of at least three years.

The regulations, which are currently undergoing stakeholder review, also stipulate a shorter rotation cycle for individuals within the audit firms. Key personnel, including audit partners, managers, and staff, would be required to rotate off an insurer's account after just four consecutive years. This move is designed to enhance auditor independence and introduce a “fresh pair of eyes” to the financial scrutiny of companies that manage vast sums of policyholder funds.

According to the draft notice published under the Insurance Act, the primary objective is to establish a reliable financial reporting framework and clarify the roles and responsibilities of the board, management, and external auditors. The Treasury aims to provide “reasonable assurance that the financial statements are free from material misstatement—whether due to fraud or error,” a critical step for an industry that has faced governance challenges in the past.

A Response to Sectoral Weaknesses

The push for stricter oversight comes against a backdrop of historical corporate governance failures that have occasionally rocked the stability of Kenya’s financial sector. While the insurance industry has not had a recent crisis on the scale of the banking sector's collapse of Dubai Bank, Imperial Bank, and Chase Bank, it has seen its share of challenges. In previous years, several firms, including Blue Shield Insurance, United Insurance, and Standard Assurance, were placed under statutory management due to issues that included an inability to honour customer claims, highlighting underlying weaknesses in governance and financial reporting.

These new rules represent a significant tightening of the regulatory environment for insurers, surpassing the requirements in other parts of Kenya's financial landscape. For instance, the Companies Act does not impose a mandatory limit on auditor tenure for most non-financial corporations, leaving the decision to shareholders. In the banking sector, prudential guidelines issued by the Central Bank of Kenya (CBK) mandate a five-year rotation for audit partners, but not for the audit firms themselves, allowing for longer-term relationships provided independence is maintained.

Aligning with Global Trends

The proposed Kenyan regulations align with a global trend towards stricter auditor independence rules, although the specifics vary by jurisdiction. In the European Union, Regulation (EU) No 537/2014 generally limits the tenure of an audit firm for a public-interest entity, including insurance undertakings, to 10 years, though member states have options to extend this period under certain conditions like public tenders or joint audits. Similarly, South Africa’s Independent Regulatory Board for Auditors (IRBA) implemented a mandatory audit firm rotation rule requiring rotation every 10 years, which became effective in April 2023 to enhance audit quality and address concerns about long-standing relationships compromising independence.

In the United States, the Sarbanes-Oxley Act of 2002 mandates the rotation of the lead audit partner every five years but does not require mandatory rotation of the entire audit firm. The debate continues globally on whether the benefits of a fresh perspective from a new firm outweigh the potential costs, such as the loss of institutional knowledge and the initial learning curve for the incoming auditor.

Implications for Kenya's Insurance and Audit Sectors

The proposed changes are expected to have a significant impact on both insurance companies and the audit profession in Kenya. For insurers, the regulations will necessitate more frequent tendering for audit services, potentially increasing administrative costs. However, proponents argue this is a small price to pay for enhanced risk management and greater public confidence in their financial statements.

For the country's major accounting firms—often referred to as the 'Big Four' (PwC, Deloitte, EY, and KPMG)—the rules will force a reshuffling of major client portfolios. While it may disrupt long-held client relationships, it could also create opportunities for mid-tier audit firms to compete for the accounts of major insurers, potentially increasing competition in the audit market.

Professional bodies like the Institute of Certified Public Accountants of Kenya (ICPAK) and the Association of Kenya Insurers (AKI) are expected to submit their feedback on the draft regulations. While their specific submissions on the 2025 draft were not public at the time of this report, ICPAK has consistently advocated for measures that strengthen accountability and uphold professional ethics. The final form of the regulations will likely reflect a balance between the Treasury's push for tighter controls and the practical implementation concerns of the industry. As of the publication of this article, the official draft of the regulations had not been made publicly available on the National Treasury or Insurance Regulatory Authority websites for broader public review. FURTHER INVESTIGATION REQUIRED.