Insurance audit firms face eight-year term limit under draft Treasury rules

In a bid to enhance transparency and strengthen governance within the insurance industry, the Treasury has proposed new regulations limiting the tenure of external auditors and appointed actuaries serving insurance companies.

The proposed Insurance (External Auditors and Appointed Actuaries) Regulations, 2025 aim to introduce strict rotation rules, capping the tenure of audit partners, managers and staff at four consecutive years, while the audit firm itself will be limited to eight consecutive years.

According to the draft guidelines, once the eight-year term expires, the same audit firm will be barred from re-engagement with the same insurer for at least three years. The draft notice, published under the Insurance Act, states that the proposed framework is intended to strengthen governance in the insurance sector, which handles billions of shillings in policyholder funds annually.

“The objectives of these regulations are to ensure that there is a reliable financial reporting framework [and] there are clearly defined roles and responsibilities of the board, management, external auditor and appointed actuary in regard to financial reporting,” reads the draft rules.

The proposal adds that the regulations will ensure there is reasonable assurance that financial statements are free from material misstatement, whether due to fraud or error. The regulations will apply to all insurers, microinsurers, appointed actuaries and external auditors. If implemented, the rules will tighten oversight compared to other financial sectors.

Under the Companies Act, most non-financial corporations in Kenya face no mandatory limit on auditor tenure, relying instead on shareholders’ discretion during annual general meetings. In the banking sector, the Central Bank of Kenya (CBK) prudential guidelines require auditor rotation every five years for audit partners but allow firms to continue auditing the same bank for longer periods, provided independence is maintained.

In 2016, the then CBK Governor Dr Patrick Njoroge proposed a three-year term limit for external auditors of banks to allow “a fresh pair of eyes,” following the collapse of Dubai Bank, Imperial Bank and Chase Bank in quick succession.

However, no legislation was enacted to enforce that proposal.

In contrast, the new insurance rules propose a much shorter rotation cycle and explicitly prohibit reappointment for three years, making the framework one of the strictest among regulated industries.

“An audit firm shall not be engaged for a period of more than eight consecutive years,” reads the draft, adding that the firm to be hired must have at least five years’ experience in insurance auditing practice.

The draft regulations, if adopted, would ensure clearer accountability in the management of policyholder funds and provide a stronger safeguard against misstatements or financial misconduct within the insurance sector.

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