Thursday, April 18, 2024
NewsNBE unveils new insurance external audit rules.

NBE unveils new insurance external audit rules.

  • Directive seeks to limit contract terms, introduce competitive bidding.

The central bank is introducing yet more legislation for the insurance industry as regulators draft legislation that would place limitations on insurers’ contracts with external auditors. Insurance industry insiders criticize the move as unnecessary interference.

A draft directive the National Bank of Ethiopia (NBE) recently shared with the heads of insurance companies stipulates that insurers can only appoint an external auditor for a maximum of two terms, each lasting three years.

It is in direct contrast to industry practices, which often see external auditors (either domestic or in partnership with foreign firms) work with a given insurer for extended periods with approval from shareholders.

The practice was also commonplace in the banking industry until the NBE enforced similar legislation a year ago. The new rules oblige banks to hire an external auditor for no longer than two terms of three years each.

Regulators have also proposed to limit the reappointment of external auditors by insurers, with the draft dictating that reappointment can only take place following a three-year lapse after the completion of two consecutive terms.

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An insurance veteran who spoke to The Reporter on condition of anonymity decries the proposed rule as nothing other than interference in the day-to-day operations of insurance firms.

 “This is a restriction. Has there been a finding? Do they want to put a stop to an incident that occurred?” asked the veteran.

Insurers have been following a procedure whereby their respective management and board propose an external auditor for approval by shareholders during annual general assemblies, with contracts up for shareholder approval at the end of each financial year, in line with the commercial code.

The new draft states that insurers may select and appoint an external auditor for one term “through competitive bid and in compliance with their own procurement policies and procedures.”

Insurers are free to reappoint the auditor for a second term without a competitive bid. 

“If an insurer fails to appoint an external auditor, the NBE may appoint an external auditor to the insurer in accordance with the relevant laws,” the directive states. 

Regulators are yet to introduce any legislation that provides guidelines on insurers’ process of hiring an external auditor. 

Regulators have also tabled to the heads of insurance firms another draft directive that would place more stringent requirements on the qualifications for holding an executive position in the industry.

The draft will add two years to the work experience requirements for top executives. If approved, it will repeal a directive in place for over a dozen years.

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