Ethiopian Legal Brief

Reinsurance Company Establishment Directives No. 118/2020

LICENSING AND SUPERVISION OF REINSURANCE BUSINESS

Reinsurance Company Establishment Directives No. 118/2020

 WHEREAS, establishment of national reinsurance companies promotes financial resource mobilization and reduces costs related to cross boarder reinsurance transactions;

WHEREAS, national reinsurance companies enhance underwriting capacity and solvency of direct insurers by providing technical support and cover against accumulated and catastrophic losses;

WHEREAS, existence of national reinsurance companies simplifies treaty negotiations, settlement of claims and payment of ceded premium in domestic currency within the shortest possible time;

WHEREAS, there is a need to put in place a comprehensive licensing framework for the establishment of national reinsurance companies;

Now, therefore, the National Bank of Ethiopia has issued these directives pursuant to the authority vested in it by Articles 5(8) and 58(2) of the Insurance Business Proclamation No. 746/2012.

 

1.             Short Title

These directives may be cited as “Reinsurance Company Establishment Directive No. 118/2020”.

2.             Definitions

For the purpose of these directives, unless the context requires otherwise:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3.             Scope of Application

The provisions of these directives shall be applicable to those who desire to obtain or renew reinsurance business license.

 

4.             General

 

 

 

 

5.             Form of Establishment

 

 

6.             Ownership

 

 

7.             Capital

 

8.             Organizers and Project Manager

 

 

 

 

 

 

 

9.             Requirements for License

Requirements to obtain reinsurance business license include the following.

9.1.                 Pre-application Phase

An applicant shall submit the following documents to initiate the licensing process:

 

 

 

 

 

 

 

9.2.                 Application Phase

The applicant who passed through pre-application phase shall submit the following documents to proceed with the licensing process:

 

 

 

 

 

 

 

 

 

 

  1. financial projections for the first three years including revenue account, balance sheet, income statement, cash flow projections and sensitivity analysis, and
  2. conclusion /recommendations;

 

 

 

 

 

 

 

10.         Fit and Proper Criteria

With respect to knowledge, experience and age, directors, a chief executive officer and a senior executive officer shall fulfill at a minimum the following.

 

10.1.1.         Board of Directors

  1. At least seventy five percent of the reinsurer’s board members shall hold a minimum of first degree or equivalent from recognized higher learning institutions; and the remaining board members, at a minimum, shall complete general secondary school or its

 

  1. Members of the board of directors shall have adequate experience in business management, preferably in insurance or reinsurance business, and/or should take adequate training in insurance and reinsurance business management after holding a sit on the

 

 

10.1.2.         Chief Executive Officer

A chief executive officer shall:

  1. at a minimum hold first degree from recognized higher learning institution    and   preferably    have   diploma    or

 

advanced diploma in insurance from the Chartered Insurance Institute(CII) and/or life Office Management Association(LOMA); and

 

  1. have a minimum of :
    1. 10 years experience in insurance of which 5 years shall be in a chief executive offer position or 7 years shall be in a senior executive officer position; or

 

  1. 7 years experience in a reinsurance company of which 4 years shall be in a managerial position of core areas;

 

10.1.3.         Senior Executive Officer

A senior executive officer shall:

  1. at a minimum hold first degree from recognized higher learning institution and preferably have diploma or advanced diploma in insurance from the Chartered Insurance Institute(CII) and/or life Office Management Association(LOMA); and

 

  1. have a minimum of :
    1. 8 years experience in insurance of which  4 years shall be in a senior executive officer position; or

 

10.2.             Integrity

  1. b) 5 years experience in a reinsurance company of which 3 years shall be in a managerial position of core areas;

 

Persons with significant influence shall be honest, reputable and diligent. In determining integrity of persons with significant influence, all relevant factors shall be considered, including but not limited to:

 

 

 

 

10.3.             Financial Soundness

Persons with significant influence shall be financially sound. In determining financial soundness of persons with significant influence, all relevant factors shall be considered, including but not limited to:

 

 

 

 

 

 

 

10.4.             Ongoing Fitness and Propriety Test, and Action by the National Bank

The National Bank may conduct fitness and propriety test on persons with significant influence on the reinsurer on ongoing basis. Where such a test

indicates that a person with significant influence has failed to fulfill the fitness and propriety test as set out in these directives, the National Bank may:

 

 

 

 

10.5.       Subsequent Notification Requirements

 

 

10.6.       Assessment of Fitness and Propriety

Written request shall be submitted to the National Bank along with the following documents in order to conduct fitness and propriety test.

 

  1. an updated and signed curriculum vitae (including name, sex, nationality, birth date, education, recent photograph, employment history, experience in business and financial affairs, involvement in civic, social and charitable activities including any leadership position held) accompanied with original and copies of documents signifying educational qualification and work experience; and

 

  1. copies of identification card and /or

 

  1. completed and signed fitness and propriety test questionnaires which form part hereof;

 

  1. copy of tax identification number card; and

 

 

 

  1. copy of the company’s memorandum and articles of association;

 

  1. copies of audited statements of the legal entity concerned, for the last immediate three consecutive years or for each year it has been in operation, if less than three years; and

 

 

11.         Condition for commencement of operation

To commence operation, a licensed reinsurer shall:

 

 

 

 

12.               Period of Limitation for Acting Officers

A person shall not assume chief executive officer or senior executive officer position on acting basis for more than six months.

 

13.               Applicability of Insurance Business Proclamation

Insurance Business Proclamation No.746/2012 shall, mutatis mutandis, be applicable to re- insurance companies regarding licensing requirements not covered by these Directives.

 

14.               Display of License

A licensed reinsurer shall at all times display in a conspicuous place its valid original business license in its head office and copy of the business license in its branches, if any.

 

15.               Renewal of License

A reinsurer shall renew its business license every year.

 

 

 

16                Fees

 

 

 

 

17.       Effective Date

These Directives shall enter into force as of the 1st day of May 2014.

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