Insurers left unassured by NBE directive

Yinager Dessie (Photo: Anteneh Aklilu)

Insurers expressed their shock to the highly anticipated investment of insurance fund directive that was reviewed by the National Bank of Ethiopia (NBE) recently.
The new directive that amends the 16 years old ‘licensing and supervision of insurance business investment of insurance funds directive no. SIB/25/2004’ highly disappointed insurers. The insurers had anticipated for better amendments that in turn would boost the sector’s investment in the economy.
The sector actors claimed that the NBE’s new directive indicated that the government was not intent for the insurance business and furthermore did not consider the actual economic situation and inflation parameters.
About 18 months ago the central bank drafted an amendment to improve the insurance fund investment on none cash (Treasury Bills and bank deposits) sector.
On the draft directive NBE had proposed that the general insurAance business be reduced, that is, the requirement to preserve 65 percent liquidity to 50 percent of the total asset of insurers and the balance for other businesses.
It has been proposed that from the total admitted assets of an insurance company, the company shall invest 20 percent in company shares from 15 percent of the 2004 directive.
At the same time the December 2018 draft directive stated that 25 percent of the asset would be invested in real estate contrary to 10 percent in the old directive.
Meanwhile, the recently issued amended directive, reverted both the former proposal of NBE and recommendation of insurers and put the Treasury Bills and bank deposits at 60 percent with only five percent reduction from the previous directive.
At the same time the highly anticipated percentage share approval on investment on real estate (purchase or construction of buildings) will not change from the previous 10 percent of the total assets shares. The draft was tabled to make it 25 percent.
The asset that shall be invested on company shares has increased by five percent and is now at 20 percent.
Besides raising their frustration on the amended directive, they claimed that the directive was carelessly done since 10 percent that was always allowed for free choice investment was left out in the directive.
“The new directive only stated the 90 percent of asset investments. I am confused why the 10 percent was not included in the new directive,” one of the long-serving insurance leader told Capital.
On the long term (life) insurance business the new directive did not change anything except excluding the article that stated that the insurance company shall invest 10 percent of its asset on investment based on its choice like the general insurance sector.
While on the draft proposal for the life insurance sector NBE had proposed to make 40 percent of the total asset to be liquid and insurers had recommended it to drop to 30 percent from the existing 50 percent.
“We have seen only five percent reduction on general insurance but the amended directive does not totally look at the life insurance sector,” the insurers stated as they expressed their anger.
“The government insisted that assets remain liquid than be actively invested in the economy,” one of the insurance presidents said, “this is an indicator of how the government shows no interest to improve the insurance business.”
Another insurance president that spoke with Capital expressed his feeling by stating, “it is ridiculous to spend time on discussion on the draft document if the actual amendment does not consider any of our recommendation. Why therefore should we spend our time on discussions that are not impactful?”
Similarly another insurance leader who demanded anonymity said, “at the current market condition putting the asset on T bills or bank deposit exposes the investment to be consumed by inflation and make zero/ cancel out the assets of insurers.”
“The new directive totally discourages investment that shall create not only wealth for companies but also massive job, but NBE did not understand this.”
The insurers have held discussions about the directive last week and have decided to pursue their anger to the NBE via a letter that will be written by their association, the Association of Ethiopian Insurers.
In a nutshell, insurers had eagerly awaited the revision of the directive, that they expected would be considerate for the current economic condition than the one issued to effectiveness about 16 years ago. They expected that the new directive will give them more room to expand their businesses on investing in different sectors mainly in the real estate business.
Recently NBE has amended different directives in the insurance sector. From the latest insurance business directives amendment NBE has also changed one sub article of the ‘Prohibition of Issuance of Certain Types of Bonds by Insurance Companies Directive no SIB/24/2004’ thus indicating a possibility for allowance of giving unconditional bonds.
The previous directive issued in 2004 prohibited insurers from issuing any unconditional bond.