One of Africa’s largest reinsurance firms, African Reinsurance Corporation, has suspended issuance of new political violence treaty (PVT) cover for regions experiencing conflict in Ethiopia.
The treaty provides insurance coverage against risks of political unrest such as terrorism, and riots, for regions experiencing conflict in Ethiopia. It has been available in the Ethiopian insurance market since 2017 after many companies experienced damage due to protests in the Amhara and Oromia regions.
In a letter to insurance companies dated 16th August 2023, African Reinsurance said it had observed ongoing conflicts in parts of Ethiopia varying in magnitude, type and nature. This was leading to ambiguity in policy interpretations and challenges in courts.
Noting that the Ethiopian government has been declaring states of emergency in several regions to address the conflicts, the reinsurer said it had decided to suspend issuance of new PVT cover in any region currently under a state of emergency or that may be declared in future.
“It is expected that losses would be higher if coverage continued in conflict-ridden regions,” said an insurance executive working at one of the private insurance firms, supporting the action of the reinsurance firm.
The executive said the new ban does not affect existing policyholders. “Existing policyholders will still be covered,” he said.
The suspension takes immediate effect from 16th August 2023 until further notice, according to the letter. African Reinsurance warned that any policies issued after this notice date covering regions in Ethiopia under state of emergency would not be covered under the PVT treaty.
The move aims to address challenges arising from interpreting insurance policies in conflicting and changing situations on the ground in Ethiopia. However, it means individuals and businesses in emergency-declared areas of Ethiopia will not be able to take new political violence insurance during this period.
Attempts to get a comment from Habtamu Debella, country director of African Re, were unsuccessful. But the firm has formally apologized for any inconvenience caused by the suspension, but said it was a crucial decision given the prevailing internal conflicts and states of emergency across some parts of Ethiopia.
The conflicts and emergency declarations have complicated underwriting political risk insurance in the country.
The Ethiopian Insurance Companies Association has not yet convened to develop a joint response to the suspension. The options for member insurance companies are limited as African Reinsurance Corporation is currently the sole provider of reinsurance coverage for political violence and terrorism insurance policies in Ethiopia.
“We have asked explanations,” said Yared Molla, president of the Association and CEO of Nyala Insurance, saying they were supposed to be consulted.
Yared said member companies that offer PVT coverage will meet next week to determine how to respond to clients affected by the suspension.
Last week, the parliament approved a state of emergency in Amhara region in a bid to stabilize the region, which had seen fighting break out between the Fano rebel group and the Ethiopian National Defense Force (ENDF).