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:

  • “chief executive officer” means a person by whatever title he/she may be referred to, who is primarily responsible for the day-to-day management of the affairs of a reinsurer;

 

  • “core area” means an insurance or reinsurance operation, life and/or general, related to underwriting, claims, reinsurance, internal control or risk management;

 

  • “company” means a share company as defined under the Commercial Code of Ethiopia, the capital of which is wholly owned by Ethiopian nationals or organizations wholly owned by Ethiopian nationals and registered under the laws of, and having its head office in, Ethiopia;

 

  • “director” means any member of the board of directors of a reinsurer by whatever title the person may be referred to;

 

  • “fit and proper criteria” means criteria used to assess and determine whether persons with significant influence possess the integrity, financial soundness and competence and capacity to fulfill the responsibilities of their positions;
  • influential shareholder” means a person who holds directly or indirectly two percent or more of the total subscribed capital of the reinsurer;

 

  • “managerial position” means a position whose holder reports directly to a senior executive officer or higher;

 

  • “National Bank” means the National Bank of Ethiopia;

 

  • “organizers” means persons who have initiated plans or facilitated the formation of the reinsurer and who shall jointly and severally be liable to third parties in respect of commitments entered into during the formation process of the reinsurer;

 

  • “person” means any natural or juridical person;

 

  • “persons with significant influence” means influential shareholders, directors, chief executive officer and senior executive officers of the reinsurer;

 

  • “project manager” means a person who shall be in charge of the whole process of obtaining business license of a reinsurer;

 

  • “reinsurance” means an agreement whereby a reinsurer provides insurance to a risk assumed by an insurance company;

 

  • “reinsurer” means a person that provides protection through the sale of reinsurance contract; and

 

  • “senior executive officer” means any officer of the reinsurer, by whatever title he/she may be referred to, who is deputy to the chief executive officer or is directly reporting to the board of

 

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

  • Persons with significant influence shall meet all respective requirements and considerations set in these

 

  • Appointment of directors, chief executive officer and senior executive officers shall be subject to approval by the National

 

  • In appointing a chief executive officer and senior executive officers, the board of directors shall ensure that such persons fulfill the requirements stipulated in these

 

  • Any shareholding that makes a person influential shareholder shall be approved by the National

 

5.             Form of Establishment

  • A reinsurance company shall be established as a share company stipulated in the commercial code of

 

  • The reinsurance company may be run as non-life reinsurer and life

 

6.             Ownership

  • The reinsurance company should be wholly owned by Ethiopian nationals and/or organizations wholly owned by Ethiopian

 

  • Share holdings of any one person, except the Federal Government of Ethiopia or public enterprises fully owned by the Federal Government of Ethiopia, in a reinsurer shall not exceed 5% of the total subscribed capital either on his/her own or jointly with spouse or persons who are below the age of 18 and related to him/her by consanguinity to the first

 

7.             Capital

  • The minimum paid up capital required to obtain license for a reinsurance company shall be Birr 500million (five hundred million Birr), which ought to be fully paid up in cash and deposited in blocked bank account(s) in the name of the reinsurer under

 

8.             Organizers and Project Manager

  • Organizers shall appoint a project

 

  • The project manager shall have:
    • first degree from recognized higher learning institution, and

 

  • business experience    preferably    in    designing    insurance    and/or reinsurance project.

 

  • The project manager and the organizers shall be honest, reputable and diligent. In determining integrity of the organizers and the project manager, all relevant factors shall be considered, including but not limited to:

 

  • whether the person has a record or evidence of previous conduct and activities where he/she has been convicted for a criminal offence under any law designed to protect members of the public from dishonesty or fraud whether in Ethiopia or elsewhere;

 

  • whether the person has a record of withholding information from public authorities, submission of incorrect financial or other statements, prior refusal of regulatory/supervisory approval and failure to comply with requirements of regulatory/supervisory body, other corrective actions or interventions by public authorities; and

 

  • whether the person has a record of disciplinary measures or any dispute with previous employers, or compliance with a code of conduct which has led to the imposition of a penalty under employment law or any other disciplinary measures imposed by trade or professional associations.

 

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:

 

  • evidence of registration of trade name from Ministry of Trade;

 

  • signed minutes of first meeting of organizers along with attendance sheet;

 

  • submission of prospectus, which is a printed statement that describes and forecasts the course or nature of the company along with expected risks, to be distributed to prospective investors;

 

  • written application requesting to open blocked subscription account indicating the name of the bank(s)/branch(es);

 

  • duly completed application form and propriety test questionnaire, as specified under Attachments I, II and III of these Directives, for organizers and the project manager; and

 

  • evidence of payment of investigation fee.

 

9.2.                 Application Phase

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

 

  • duly completed application form, as specified under Attachment IV of these Directives, shall be submitted to the Insurance Supervision Directorate together with all enclosures as stated herein;

 

  • evidence of paid-up capital which includes certificate of deposits in a blocked account and evidence for valuation of contribution in kind (if any);

 

  • signed minutes of subscribers meeting together with attendance sheet;

 

  • list of names, nationality, address, number and value of subscribed and paid up shares of founders to be published in newspaper;

 

  • articles and memorandum of associations written in Amharic and English;

 

  • authenticated ownership certificate and/or lease agreement for building, land, vault, equipment, fixtures and professional services;

 

  • evidence for insurance coverage for premises acquired or leased;

 

  • description of actual purchases made or proposed purchase of goods and services or lease of real estate by the insurer from related parties, organizers and project manager who are not shareholders;

 

  • duly completed general information and propriety test questionnaires for directors, chief executive officer and senior executive officers as per Annexes I and II of these Directives;

 

  • scheme of operation(business plan) stating at least the following:
    1. executive summary,
    2. introduction,
    3. macroeconomic analysis,
    4. financial sector analysis,
    5. National, regional     and    international     insurance     and reinsurance sector analysis,
    6. business environment,
    7. organization charts of the reinsurer with brief description of the functions of the main organizational units,
    8. strategic and operational plans,
    9. source of capital and finances,
    10. products and services,
    11. technological competency,
    12. accounting policies,
    13. assumptions for financial projections,
  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;

 

  • specimen retrocession treaty wording, cover notes, slips together with endorsement and proposal forms for each class of reinsurance business to be undertaken by the reinsurer;

 

  • commission rate for reinsurance (premium, profit etc) and reinsurance brokers;

 

  • retention and retrocession policy and program;

 

  • confirmation for retrocession arrangement;

 

  • name and credential of the auditors appointed by the subscribers meeting; and

 

  • evidence for payment of licensing

 

10.         Fit and Proper Criteria

  • Knowledge, Experience and Age

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

 

  • A director shall be at least 30 years

 

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:

 

  • whether the person has a record or evidence of previous conduct and activities where he/she/it has been convicted for a criminal offense under any law promulgated to protect members of the public from dishonesty or fraud whether in Ethiopia or elsewhere;

 

  • whether the person has a record of withholding information from public authorities, submission of incorrect financial or other statements, prior refusal of regulatory/supervisory approval and failure to comply with requirements of regulatory/supervisory body, other corrective actions or interventions by public authority; and

 

  • in case of chief executive officer and senior executive officers, whether the person has a record of disciplinary measures or any dispute with previous employers or compliance with a code of conduct which has led to the imposition of a penalty under employment law or any other disciplinary measures imposed by trade or professional

 

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:

 

  • whether he/she or the legal person in which he/she is a director or chief executive officer or senior executive officer or owner has instituted bankruptcy proceedings or declared bankrupt, whether in Ethiopia or elsewhere, or his/her or the company’s assets have been sequestrated because of bankruptcy or been foreclosed by a bank because of failure to repay a loan;

 

  • whether he/she or the legal person in which he/she is a director or chief executive officer or senior executive officer or owner has been convicted of default on repayments of bank or other credits or tax payment;

 

  • whether he/she or the legal person in which he/she is a director or chief executive officer or senior executive officer or owner carries non-performing loans, as defined by directives of the National Bank, from any financial institution;

 

  • whether the person’s purchase of shares in a financial institution has been funded or to be funded by another person who is actually bankrupted or technically insolvent because of irresponsible or reckless management, fraud or illegal business practice;

 

  • whether the person’s minimum net worth at the time of acquisition of shares is at least greater than shares acquired or to be acquired from a financial institution; and

 

  • whether a person’s account has been closed and not reinstated by any bank, in line with relevant directives of the National Bank, because of drawing checks without sufficient

 

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:

 

  • suspend voting rights of influential shareholders;

 

  • suspend and/or remove a director, chief executive officer or senior executive officer.

 

 

10.5.       Subsequent Notification Requirements

  • Persons with significant influence are required to immediately notify the National Bank any events that might change their assessment as fit and

 

  • If board of directors, chief executive officer, senior executive officers or external auditors of the reinsurer, during the course of performing their duties, have reasonable doubt that a person with significant influence has failed to fulfill the criteria in these directives, they shall immediately report the matter to the National Bank.

 

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.

 

  • For directors, chief executive officer and senior executive officers:
  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

 

  • For all persons with significant influence:
  1. completed and signed fitness and propriety test questionnaires which form part hereof;

 

  1. copy of tax identification number card; and

 

  • any other document that the National Bank deems necessary.

 

  • In case a director is representing a corporate body who is an influential shareholder, the following documents shall be submitted:

 

  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

 

  • any other documents the National Bank deems necessary.

 

11.         Condition for commencement of operation

To commence operation, a licensed reinsurer shall:

  • put in place at a minimum comprehensive policies, procedure manuals, programs and guidelines for:
    • human resource management, 11.1.1.1.1. investment,
    • liquidity management,
    • internal audit/control,
    • management information system/MIS,
    • planning and budgeting,
    • finance,
    • risk management,
    • fixed assets,
    • corporate governance,
    • detection and prevention of criminal activities,
    • outsourcing,
    • marketing,
    • underwriting,
    • claims,
    • retrocession, and
    • procurement;

 

  • hire, train and place adequate and appropriate staff;

 

  • ensure that operating area and the hall include:
    • proper ventilation and circulation of fresh air,
    • suitable and clean sanitary services,
    • sufficient and suitable lighting,
    • displays of working hours,
    • fire extinguishers at appropriate places,

 

  • have insurance policy for the following at a minimum:
    • fire and other perils,
    • burglary and theft,
    • fidelity, and
    • cash and valuables in premise and in

 

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.

  • A reinsurer applying for renewal of business license shall present the following:
    • application requesting renewal of business license and any changes in the particulars of the existing license;

 

  • original business license; and

 

  • Evidence of payment of renewal fee and/or

 

16                Fees

  • Persons applying to obtain reinsurance business license shall pay:
    • Investigation fee of Birr 5,000; and

 

  • Licensing fee of Birr 3,000.

 

  • A reinsurer applying for the renewal of its business license shall pay renewal fee of Birr 3,000.

 

  • A reinsurer that fails to renew its business license within one month from the expiry of the license shall pay penalty fee of Birr

 

17.       Effective Date

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

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3 thoughts on “Reinsurance Company Establishment Directives No. 118/2020

  1. I am disappointed that you gave wrong directive number that indicate as if a new directive was issued in 2020 as opposed to the existing directive issued in 2014. YOU WASTE MY TIME.

    1. Dear Samuel, It is not wrong and I didn’t modify the document.
      The directive was re-numbered by the Federal Attorney General.
      As per the newly enacted Administrative Procedure Proclamation, The Attorney General is assigned to register existing and newly enacted directives. While registering, they gave new number to all directives. You can access the directives on their legal web portal: http://legal.eag.gov.et:8080/

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