The Reporter (Addis Ababa)

5 April 2014

Ethiopia: Central Bank Issues Directive for the Establishment of Reinsurers

The National Bank of Ethiopia (NBE) has rolled out a new directive signed by Governor Teklewold Atnafu to set up the country's first reinsurance company.

The announcement was made on Thursday at the headquarters of the NBE located off Sudan Street. The directive, entitled 'Reinsurance Company Establishment Directive', allows the establishment of a reinsurance share company and will be wholly owned by Ethiopian nationals and/or organizations wholly owned by these. Share holdings of any one person, except the government of Ethiopia or public enterprises fully owned by the government of Ethiopia, in a reinsurer shall not exceed five percent of the total subscribed capital, the directive read.

The reinsurance company and shall be run as non-life and life reinsurer and the minimum paid-up capital required to obtain a license for a reinsurance company shall be 500 million birr, the directive read. According to the directive, the paid-up capital ought to be fully paid in cash and deposited in blocked bank account(s) in the name of the reinsurer. "The establishment of reinsurers will save a considerable amount of foreign currency that Ethiopian insurance companies used to pay for foreign reinsurance," Temesgen Zeleke, insurance supervision directorate direct at NBE told a press conference on Thursday.

Thus far, 30 percent of the annual premium collected by local insurance companies was dedicated to purchase the services of foreign reinsurance companies. The establishment of the reinsurance company promotes financial resource mobilization and reduces costs related to cross-border reinsurance transactions, the directive read.

The reinsurance company will be run by a a board of directors, a chief executive office and a senior executive officer.

After the establishment of local reinsurers, Ethiopian insurance companies would no more be allowed to obtain reinsurance services from foreign companies unless it is allowed by another directive. Temesgen also noted that a follow-up directive would detail the circumstances that domestic insurance can look for foreign reinsurers. Reinsurance is insurance that is purchased by an insurance company from one or more other insurance companies as a means of risk management, sometimes in practice including tax mitigation. The ceding company and the reinsurer enter into a reinsurance agreement which details the conditions upon which the reinsurer would pay a share of the claims incurred by the ceding company. The reinsurer is paid a "reinsurance premium" by the ceding company, which issues insurance policies to its own policyholders.

In Ethiopia, the oldest andb biggest insurance company, the state-owned Ethiopian Insurance Corporation, maintains outward reinsurance contracts with international reinsurance companies like Munich Re, Swiss Re and Africa Re.

Major global reinsurers include Munich Re, Swiss Re, Hannover Re, Lloyd's of London, Berkshire Hathaway/General Re, SCOR, Reinsurance Group of America, China Reinsurance Group, Korean Reinsurance Company, Partner Re, Everest Re, Transatlantic Re, London Reinsurance Group and General Insurance Corporation of India.

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