Tanzania: TIRA clamps down reinsurance loose ends

SAULI GILIARD

TANZANIA has to cough up some 300bn/- to reinsure entities abroad while retaining just 400bn/- annually. In cutting down the figure and boost the retention ratio, the Tanzania Insurance Regulatory Authority (TIRA) has issued Circular No. 55/2017 effective first day of January, next year (01-01-2018), setting out conditions for dealing with foreign reinsurers and brokers.

Addressing reporters at TIRA premises in Dar es Salaam yesterday, Commissioner of Insurance, Dr Baghayo Saqware said the circular was in response to market challenges originating from externalisation of insurance business outside the country through reinsurance.

Reinsurance, according to the website, Investopedia, is a“practice of insurers transferring portions of risk portfolios to other parties by some form of agreement to reduce the likelihood of having to pay a large obligation resulting from an insurance claim.”

“It should be noted that externalisation of insurance risks is a normal business practice in an insurance industry in a number of ways, including … spreading or sharing the risks,” the commissioner added.

Another benefit of externalisation of insurance, according to Dr Saqware, was to enhance income earnings of local insurers, “in the form of reinsurance commission receivable by local insurers.” He added that the TIRA move also aims at creating better claims management system, improving the technical competence of the local insurance practitioners and protection of the local insurers’ capital base.

He cited eleven gaps within the insurance industry, among them, excessive use of International Facultative Reinsurance Arrangement “even in the situations and cases which could safely be accommodated under Treaty Reinsurance Arrangement.

Other challenges, the regulator observes, included the 100 per cent externalisation of risks which could partly be retained locally and “poor involvement of local insurance companies in participating in assuming parts of risks intended to be externalised through co-insurance arrangements.”

He added that the authority has observed that there is a tendency by some insurers in the market to engage in co-insurance arrangements with sister or parent companies based in the jurisdictions. “Non-disclosure of reinsurance commission/fronting fee payable to local insurers,” Dr Saqware mentioned as one of the gap in the industry leading to the issuing the new circular.

However, the commissioner said, the circular has been issued following a thorough and in-depth consultation between TIRA and insurance stakeholders in the country and abroad. “The authority continues to play its statutory role as a government agency responsible for regulating and developing the insurance market in Tanzania for the benefit and protection of policy holders,” he insisted.

However, TIRA’s director of licensing & Market Conduct Supervision, Samwel Mwiru said, the retention ratio in the country is below 66 per cent, the standard of Southern African Development Community (SADC) member countries though he was optimistic that the released circular will bring positive changes.

He said one of the strategies to improve the retention ratio from current 400bn/- annually is to improve internal capacity. According to Mr Mwiru, the country’s insurance market worth approximately 700bn/-.