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BusinessCentral bank raises insurers’ minimum paid-up capital by six-fold

Central bank raises insurers’ minimum paid-up capital by six-fold

Only seven insurers meet the new threshold

The National Bank of Ethiopia (NBE) raised the minimum paid-up capital of insurance firms by six-fold. The revised ‘Minimum Paid-up Capital for Insurance Company’, which is effective as of September 15, 2022, replaced the existing threshold introduced in 2013.

The new capital requirement to obtain a general insurance license is 400 million birr, up from 60 million birr. The minimum capital for long-term insurance licenses was also raised from 15 million to 100 million birr. A company needs to deposit 500 million birr in a closed account to obtain a license for both, which was 75 million birr under the old directive.

Existing insurance companies whose paid-up capital is below the new threshold are given a five-year window period to meet the new minimum threshold by the end of June 30, 2027. However, these insurers are required to submit an action plan to the NBE by October 16, 2022.

“There is plenty of time to fulfill the requirement. The minimum requirement was very low from the outset,” said Zafu Eyessueswork, a veteran in the industry and founder of United Insurance and Hibret Bank. 

Fikru Tsegaye, an insurance profession known for his commentaries in the sector, also welcomed the decision.

“The inflation has been eating the capital of insurers. If you compare capital of insurance companies against dollar, it was declining, so the amendment is a step in a right direction,” said Fikru.

Out of the 18 existing insurance companies in the country, only seven have capital of more than 500 million birr, according to NBE’s report. The insurance industry has been struggling with low market penetration and declining premiums in a stiff competition for the limited market niche.

However, the old directive remains active for new insurance firms in the pipeline until September 15, 2023. This means organizers of new insurance firms can attain a license under the existing directive in the next year. A discussion is underway to adjust license fee required to acquire new license and renew existing ones. The fee is expected to be adjusted by 2000 percent, though that is still under discussion.

The new directive states that insurance companies in the process of share subscription that successfully collect a minimum paid-up capital of 60 million birr for general insurance business, 15 million birr for long-term insurance business, or 75 million birr for both, and submit a final application to NBE within one year after the effective date of the new directive, shall get the license.

Industry players called the new directive “hair-raising,” as the insurance industry’s growth remains nascent.

“Raising the minimum capital from 75 million to 500 million birr at once is very difficult. The new directive is inconsiderable to the difficulties the industry is facing. The industry has achieved very little capital growth in the past 20 years due to the nascent environment. The NBE itself has contributed to the weakness of the industry,” said an insurance consultant speaking to The Reporter regarding the new directive.

“The NBE was never giving appropriate attention to insurance, as the central bank was primarily occupied with banks. We have been requesting the government for the insurance industry to be regulated by a commission, authority, or agency separate from the NBE. We believe this will help the insurance industry to get better support and better attention,” the consultant explained.

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