The National Bank of Ethiopia (NBE), which regulates financial intuitions, is amending Insurance Business Proclamation No. 746/2012. This would allow NBE to set a minimum premium policy rate and it would permit Ethiopian born foreign citizens to take part in the insurance business.
Capital obtained a copy of the draft document which the central bank developed. It indicated that the central bank would issue a directive setting a minimum premium. Setting a minimum premium was a major issue for insurance companies because free market competition has hindered their profits and increased their risk, especially in motor and engineering coverage. It has been one of the most talked about issues in insurance companies’ general assemblies.
The insurers and their associations have tried many times to work with NBE to come up with a solution. In 2017 NBE recommended insurance stakeholders conduct a study to reduce risk and stop unfair competition.
Since NBE made the recommendation in early 2017 insurers have come up with concrete solutions via their association, the Association of Ethiopian Insurers (AoEI). Then they assigned Kenyan based Actuarial Services (East Africa) Limited (ACTSERV) to undertake a detailed study and come up with possible solutions.
However the Kenyan company failed to come up with a satisfactory result and the association looked for another actuary.
Yared Mola, Chief Executive Officer (CEO) of Nyala Insurance and president of AoEI said that another Kenyan company Zamara Actuaries, Administrators and Consultants Limited, is undertaking the study and will make recommendations.
The first Kenyan company was expected to finish the study within a few months but the preliminary study took over a year. Insurance companies agreed they should have done things differently. “The consultant requires data from local firms, but our experience with a modern database is very weak which led to the delay,” an insurance company spokesperson told Capital previously.
Yared agrees and hopes the study will soon be completed. “I believe the study will be finalized in the near future but it is difficult for me to be specific since the data collection that is crucial for the study takes time since Ethiopian firms have insufficient databases. The company needs to analyze records going back years,” he told Capital.
Even though he was unsure when the study would be accomplished, the study is in the final stages.
To come up with a conclusion the actuary has to examine trends, loss ratios, evaluate the premiums and commensurate with others’ market experience.
He said that the study will also take a historical look at market modeling and data analysis.
The study is expected to give a clue about the economic/floor rate for insurance premiums.
He also praised the NBE draft proclamation saying it would give the central bank a way to stabilize the market.
He commented that the draft proclamation allows NBE to issue a directive that would fix premium rates. “The governing body will issue the directive after the association tables the study,” Yared adds.
Experts said the main problem is related to motor vehicle insurance.
Car insurance has been a common problem for the profession. Premiums have now reached up to 0.5 percent of the value of the car. Insurers say the premiums they charge are small when compared with the damage. From the total claims insurers settle every year motor vehicles make up the largest proportion. In their annual report they expressed concern about the growing risk of auto insurance. Experts said that because the minimum premium was set insurance companies would have better revenue so they can invest more in saving expenses from vehicle accidents as issuers do in other countries.
“In other countries insurers take part in road designs, and even the production of vehicles which reduces traffic accidents,” one industry insider said. “We can engage in such kind of involvement to tackle the problem,” they added.
In addition to motor vehicle insurance coverage, premiums for project insurance have been decreasing over the past few years, experts say. A few years ago project premiums were about 0.4 to 0.5 percent but now they are less than 0.1 percent.
Experts said that the current competition between insurance companies is not based on the service that they provide instead they are pulling the rug out from each other in a race to the bottom by trying to offer the lowest premium payments. Experts said that even though they expressed their concern and agreed to increase premiums during their meeting, nothing happened. “It backfired and this affects them,” an expert explained.
An insurance company leader told Capital that the experience of others is related to the minimum premium rate. “For instance in Kenya the minimum insurance premium amount for motor vehicle insurance is set to three percent of the value of the vehicles but the actual premium amount has grown to 5 percent since the car compensation has risen,” the expert said.
According to sources, NBE and the board of directors of insurers have talked about the draft proclamation before it was sent to the Council of Ministers, who is responsible for reviewing it before it is tabled to the parliament.
The government also changed the banking business proclamation to open up the insurance industry to Diaspora. Currently it is only open to native Ethiopians, but the current draft amendment will give the green light for Ethiopian born foreign citizens to invest in the insurance industry including establishing a new firm that may include Ethiopian citizens or may be fully managed by the Diaspora.
NBE approves minimum premium policy rate
DBE floats Ayka Addis for record foreclosure
The Development Bank of Ethiopia (DBE) is floating the largest foreclosure in history as they plan to sell the Turkish textile giant Ayka Addis at over 1.8 billion birr.
Ayka Addis was established in June 2006 by three Turkish individuals with 679 million Birr paid up capital and 813 million birr borrowed from the Development Bank of Ethiopia and become operational in 2010.
The factory which is located in Alemgena Town of Oromiya Regional State is some 20Km west of Addis Ababa. It makes thread, dyes garments, and makes clothing like T-shirts and sportswear. It employs 7,000 workers.
Once Ethiopia’s Textile Industry Development Institute named the company as the country’s number one textile and garment exporter for the period September 2013 to August 2014 as it exported around 63million USD worth of 70,000 readymade clothing items and other textile products to countries such as Germany, Spain, the United States, Japan, France and Canada.
Most of its export production goes to Germany with German brand Tchibo accounting for as much as 85 percent of sales.
However, the company was able to run with such success only for the first four years.
The company began claiming a total loss over 900 million birr which is above it’s paid up capital of 679 million birr.
As of April, 2018 the company took close to 1.3 billion birr loan from DBE.
Back in January this year, DBE repossessed Ayka Addis Textile and Investment Group Plc from Turkish investors as the company has failed to pay back its bank loan and Ayka Addis has been managed by Ethio Capital Investment S.C, which is established by Development Bank to manage and administer the assets of foreclosed factories and companies, until it is transferred to private ownership.
This week, DBE floated the first bid to sell the company that rests on 205,000sqm. The types of properties are listed as an integrated textile factory building, machines, auxiliaries, and material inputs.
DBE set 1.8 billion birr as the floor auction price.
Millions wait years for Electricity
Over four million customers of the Ethiopian Electric Utility have been waiting a decade to get electricity.
Budget constraints, forex shortage, being unable to work on an off grid system, limited capacity of production cables are being blamed for the delay connecting electric lines to households.
“The capital investment cost of energy sector is substantial. To address this we are promoting public private partnerships and private sector independent power producing schemes to meet the country’s energy need,” Sileshi Bekele, Minister of Water, Irrigation and Energy said.
Beside shortage of hard currency, there is a significant problem with local cable production and the demand of the Ethiopian Electric Utility.
According to data from Ministry of Water, Irrigation and Energy, the country needs 33 million meters of cable per annum while local cable producers are only able to make three million meters a year.
“As we are in a reform, the ministry is working hard to compensate the backlogs through various schemes,” Sileshi said.
Ethiopia launched the national electrification program in 2017 with the support of international development partners and financing from the World Bank to achieve 100 percent energy access by 2025.
Despite the progress made so far, only 44 percent of Ethiopians have access to electricity. The per capita consumption of electricity is only 100kw which is one of the lowest in Sub Saharan Africa.
The ministry began a pilot program in 12 towns with the goal of reaching 35 percent of rural areas that can be accessed off grid.
Presently, Ethiopia is able to generate 4,300MW from water dams, three wind farms, many small diesel generators and waste to energy based power plants.
Mega projects like GERD, Koysha, Genale- Dawa hydroelectric dams will jointly produce additional 8724 MW which is double the current generation capacity, according to the Ministry.
The government is working to change the 97 percent of the hydro dominated power generation to mix with other alternatives because hydro is affected by climate change. As a result, Ethiopia began power rationing last month as the water level dropped significantly at Gibe III. Ethiopia looses an estimated 3.3 million USD as a result of power outages per year.
The Ethiopian Electric Utility has 2.9 million customers.
Hotel show not a sleeper
The 7th Hotel Show Africa took Place at Millennium Hall from June 27-30. It attracted over 140 companies representing 500 brands.
Hotels, interior designers, hotel equipment suppliers, lodges and consultants participated in the show. 
For the first time the show awarded people working in the community based lodge and tourism sectors.
Hirut Kassaw, Minister of Culture and Tourism said at the opening ceremony “this kind of show have great value connecting playmakers in the hotel industry in addition to helping us promote tourism.’’
Kumneger Tektel, managing director of OOZZIE Hospitality and Tourism Management Consultancy said the government should work to have more meetings, incentives, conferences and exhibitions (MICE) to get more jobs into the sector.
