Ethiopian Insurers Association members have agreed to establish their own reinsurance firm. The decision by the association is made after the promulgation of a new directive, Directive No. SBB/1/2014, by the National Bank of Ethiopia to allow the formation of reinsurance companies in Ethiopia.
Kiros Jiranie, President of the Association and CEO of African Insurance S.C., stated that all members of the association have supported idea of establishing a reinsurance firm by the association.
Organization committee for the formation of the new firm has been set up by the association, Kiros said. He further explained that “the association has taken the initiative to follow the formation of the organizing committee”.
Other potential buyers or bankers will join the company, Kiros said.
According to the Directive share holders of a reinsurance company cannot hold more than five percent of the entire company. However, the Federal government of Ethiopia and public enterprises owned entirely by the federal government can own more than the five percent bar. Individual share holders cannot also pass the five percent bar jointly with their spouse or persons under the age of 18 that are related to him/her.
Reinsurance companies should have a minimal of 500 Million Birr, according the directive. Share company is the only type of business organization that is allowed for a reinsurance company to operate under.
In the previous times, Ethiopian insurance companies used foreign based reinsurance firms and this makes the whole reinsurance business new to the Ethiopian financial sector. Nevertheless, Ethiopian Insurance companies have occasionally asked the government to search for possibilities for the formation of reinsurance compnies localy.
The Directive incorporates different reasons for which the establishment of reinsurance company is needed. It states establishing a national reinsurance company will promote financial resource mobilization and also reduces costs with regard to reinsurance across borders.
The Directive further states the new move will improve underwriting capacity and solvency of direct insurers. This is expected to be achieved through promoting technical support and cover against accumulated and catastrophic losses.
National Bank also expects having a national reinsurance company to simplify treaty negotiations. Other simplifications that it anticipates are settlement of claims and paying ceded premium in domestic currency within the shortest possible time.
Source: Capital
