
Commentaries | Nov 30,2019
A new directive issued by the National Bank of Ethiopia (NBE) requires insurance companies to receive confirmation from Ethiopian Reinsurance (Ethio-Re) before covering a risk that exceeds 30pc of their gross capacity.
The 11-page directive, which became effective as of August 17, 2020, makes Ethio-Re the lead reinsurer for any risk that falls out of a treaty signed between the insurance company and reinsurance firm.
Gross capacity is the sum of the risk covered by the insurance company and the agreement signed between the insurance company and the re-insurer.
Any balance from the risk that falls out of the treaty has to be shared at least among five reinsurers including Ethio-Re, African Re and PTA Re. With this arrangement, Ethio-Re is entitled to a 20pc priority portion of obligation in the insurance company's policy portfolio for a risk that is covered outside of a treaty.
This gives Ethio-Re the mandate to have the first refusal right to accept or reject the individual or set of risks that exceed the treaty, according to Dagnachew Mehari, CEO of Bunna Insurance.
"Unless the risk is spread to another reinsurance company that covers Ethio-Re," said Dagnachew, "it's going to be risky."
Being the lead reinsurer, Ethio-Re is authorised to give confirmation to insurance companies to offer coverage whenever there is a risk that surpasses the gross capacity by 30pc. To give this confirmation, Ethio-Re has to earn an A rating or equivalent in its recent credit rating. However, the four-year-old firm is not a credit-rated reinsurance company yet.
"Regulators have exempted the reinsurance company to work together with other insurance companies despite not being rated," said Dagnachew.
The balance sharing of the risk between the reinsurance companies has to be under the same terms and conditions with the lead reinsurance company.
This is going to be very risky in the case of a huge or major event, according to a CEO of an insurance company who wanted to remain anonymous.
"Every insurance company has its own risk management system," said this executive, "but with this directive, all small and big insurance companies are boxed and handled in a box."
Reinsurance by nature has to be dispersed in a way that crosses borders, and the regulator cannot make everything pass through Ethio-Re in the name of saving forex, according to this executive.
Insurance companies under the risk-sharing offer have to respond in two business days. If the insurance company fails to respond within the specified time, then the underwriting insurance company can offer the risk to international reinsurance.
"There is an over-accumulation of risk under Ethio-Re," said the CEO of the insurance company who wanted to remain anonymous. "Ethio-Re is already taking on too much risk from the mandatory treaty reinsurance and policy cession."
Currently, Ethio-Re takes 25pc from treaty reinsurance and five percent of policy cession from insurance companies. However, the five percent mandatory policy cession that was supposed to be given for only five years will expire this coming fiscal year. Executives of Ethio-Re hope that this scheme continues until it grows since it helps the firm to have a solid set as well and expand its business portfolio.
"Capacity is something that can be grown, and we're a very well-capitalised firm," said Fikru Tsegaye, executive officer of strategic planning and business development at Ethio-Re, which has 50 million dollars in paid-up capital.
"There is no over accumulation of risk. We handle our risk with a wise, calculated and professional assessment," he said. "In addition, we spread our risk with other global and continental reinsurance companies that cover us."
Ethio-Re is covered by reinsurance companies such as Munich Reinsurance Company, a reinsurance firm based in Munich, Germany.
"We're now working to get rated, which didn't happen earlier because we're a very young company, and we don't have a solid setting," said Fikru.
During the last fiscal year, Ethio-Re managed to decrease the outflow of forex by some 300 million dollars.
"We'll continue to improve that," said Fikru.
This is another directive to ensure the flow of forex out of the country is limited, according to Wassihun Mekonnen, a legal attorney that has worked for multiple insurance companies.
"It's inevitable that Ethio-Re is going to benefit from this," he said. "However, this is going to affect small insurance companies that can't cover big risks as they have to depend on reinsurers."
The insurance industry has 17 companies, 16 of which are privately owned, and 595 branches throughout the country. Out of the total number of branches, close to 54pc are located in the capital. The total paid-up capital of all insurance companies has reached nine billion Birr.
PUBLISHED ON
Sep 19,2020 [ VOL
21 , NO
1064]
Commentaries | Nov 30,2019
Fortune News | Sep 27,2020
Fortune News | May 14,2022
Radar | Oct 24,2020
Commentaries | Feb 12,2022
Fortune News | Oct 05,2019
Radar | Aug 07,2021
Fortune News | Dec 29,2018
Radar | Aug 22,2020
Radar | Feb 05,2022
Dec 24 , 2022
Biniam Mikru heads the department of cabinet affairs under Mayor Adanech Abiebie. But...
Jul 2 , 2022 . By RUTH TAYE
On a rainy afternoon last week, a coffee processing facility in the capital's Akaki-Qality District was abuzz with activ...
Nov 27 , 2021
Against my will, I have witnessed the most terrible defeat of reason and the most sa...
Nov 13 , 2021
Plans and reality do not always gel. They rarely do in a fast-moving world. Every act...
Dec 9 , 2023
Making a paradigm shift seems elusive for those in the driving seat of Ethiopia's mon...
Dec 2 , 2023
The symphony of traffic noise in Addis Abeba is not just a sign of life, but a siren...
Nov 25 , 2023
Ethiopia's quest to develop a functioning capital market is a demanding yet not unach...
Nov 18 , 2023
Prime Minister Abiy Ahmed (PhD) has made a fervent call for landlocked Ethiopia to ga...