Ethio-Re Capital Shrinks as Forex Reform Bites

Ethio-Re Capital Shrinks as Forex Reform Bites

Jan 4 , 2026. By NAHOM AYELE ( FORTUNE STAFF WRITER )

In a sharp reversal, Ethio-Re’s paid-up capital has plummeted by 68pc following the August 2024 foreign exchange reforms. Once capitalised at over 2.4 billion Br, the domestic reinsurer now faces a balance-sheet gap, largely due to currency translation effects and tightening access to hard currency. Executives attributed the decline not to losses but to regulatory shifts that alter how capital is denominated.

Ethiopian Re-Insurance S.C. (Ethio-Re), the country’s sole reinsurer and a critical backstop for domestic insurers, has recorded a sharp erosion in its paid-up capital following foreign-exchange regime changes introduced in July 2024, revealing the uneven transmission of macroeconomic reforms.

According to company executives, the paid-up capital has declined by 68pc, a reversal they attributed to monetary policy adjustments compounded by a persistent shortage of hard currency. The contraction has heightened concerns over the firm’s ability to meet foreign obligations, even as its headline financial performance remains robust.

Ethio-Re closed the 2024/25 financial year with a profit before tax of 616 million Br, a 45.3pc increase year-on-year. Revenue from reinsurance services grew by 34pc to 2.9 billion Br, while service expenses climbed to 2.28 billion Br, uncovering higher claims, retrocession costs, and operational pressures.

Despite the improved earnings, foreign exchange constraints dominate management’s risk outlook.

“The primary challenge we face is the inability to settle obligations with foreign reinsurers,” said Fikru Tesgaye, executive officer for strategy and business development. “The company struggles to access foreign exchange.”

Ethio-Re has formally requested a special directive allowing it to access hard currency under conditions similar to those granted to banks. It has also petitioned regulators to open the insurance industry to foreign investors, arguing that dollar-denominated equity would materially strengthen its balance sheet.

“Allowing insurers to retain premiums received from abroad in foreign currency and hold dollar-denominated assets would improve operational efficiency,” Fikru said. “Capital inflows in hard currency would help stabilise the sector.”

Officials at the National Bank of Ethiopia (NBE) declined to comment. However, the Central Bank’s latest industry report shows total insurance sector assets at 65.6 billion Br, with general insurance accounting for 93.2pc.

The industry’s 17 insurers generated 6.5 billion Br in profit before tax from general insurance and over 400 million Br from long-term insurance.

Incorporated a decade ago with paid-up capital of 506.1 million Br, Ethio-Re’s ownership is dominated by the Commercial Bank of Ethiopia (CBE) and Ethiopian Insurance Corporation (EIC), state-owned giants, which jointly hold 40pc. The remaining shares are held by 139 private shareholders, including seven banks, individual investors, and a labour union.

At the company’s 10th annual general meeting, held last week at the Hilton Hotel on Menelik II Avenue, Board Chairperson Dagnachew Mehari proposed raising paid-up capital to five billion Birr, framing the move as a “necessary buffer” against ongoing macroeconomic adjustments.

Five years ago, Ethio-Re announced plans to double its capital to 2.5 billion Br, ultimately raising 2.45 billion Br. A further 40.36 million Br in subscribed capital remains uncollected and was cancelled by a vote of the general assembly.

According to Netsanet Lemessa, former chief executive of Ethiopian Insurance Corporation and newly appointed CEO of Ethio-Re, the uncollected capital could not be raised after November 24, 2025, following a directive from the Ethiopian Capital Market Authority (ECMA) barring the collection of funds from already sold shares.

The company now plans to issue new shares worth 1.4 billion Br to existing shareholders, pending regulatory approval.

Solomon Bekele, senior capital market advisor at the Authority, disclosed that Ethio-Re has yet to register the planned issuance. Once registered, the shares can be offered through the capital market.

While reaffirming the capital target, the Board has opted for a phased approach, citing shareholder constraints amid tighter economic conditions.

According to Dagnachew, a stronger capital base would boost competitiveness, expand market share, and support improvements in international credit ratings.

“Reinsurance requires deep capital and strong risk-bearing capacity,” he said.

The company plans to expand domestic risk coverage, particularly in facultative reinsurance, while strengthening inward reinsurance operations. However, some shareholders questioned whether the proposed capital increase goes far enough.

Yared Mola, chief executive officer (CEO) of Nyala Insurance and a veteran of nearly three decades in the industry, described the move as directionally sound but insufficient. A representative of the CBE echoed the concern, urging the Board to pursue a more ambitious capitalisation strategy.

Dagnachew cautioned against overburdening investors, arguing that capitalising earnings and enforcing shareholder commitments could allow Ethio-Re to meet its targets without imposing undue strain.

Regulators have previously attempted to support the reinsurer by mandating insurers to cede at least five percent of their risks to Ethio-Re. Yet, the company has struggled to translate this captive business into higher ratings or leadership in treaty arrangements.

“A stronger Ethio-Re could emerge as the treaty leader for the domestic market,” said Aminu Nuru, a Doha-based insurance expert and financial analyst. “But capital alone is not enough. Technical capability and professional standards must also improve.”

Currently, Africa-Re, the Nigerian-based pan-African reinsurer, serves as the treaty leader for most domestic insurers.

“Ethio-Re is the natural candidate to assume that role if regulatory and structural constraints are addressed,” Aminu said.

The global rating agency, AM Best, currently assigns Ethio-Re a BB rating, indicating fair financial strength, an assessment that reflects both its improving profitability and the unresolved vulnerabilities on its balance sheet.

PUBLISHED ON Jan 04,2026 [ VOL 26 , NO 1340]