A move by the Rwandan central bank to have insurance companies improve their liquidity has seen a number of them put their properties on the market to free trapped cash.

Over the years, insurance companies investment portfolios had become heavily skewed towards property, exceeding the investment limit set by the central bank.

This had begun to affect their ability to meet claims forcing the National Bank of Rwanda (BNR), the regulator, to order adjustments to their investment portfolios.

“There is a limit for insurance companies’ investments in real estate, some of them had exceeded this limit, what they are doing is restructuring their assets into cash or near liquid form,” said Bonaventure Kagaba Sangano, the director of non-bank financial institutions at BNR.

Insurance companies are not supposed to exceed 30 per cent of investments in real estate or immovable properties of the insurer’s total capital, excluding those for the insurers use.

“Naturally maybe they are not supposed to invest in real estate; this is client’s money that needs to be readily available in case of insurance claims,” he said.

Much as central bank did not directly push them to sell off their property, pressing them to have sufficient capital has driven some insurance companies to hastily sell off some of their assets as a way of restructuring their assets, into cash or any other form easy to convert into cash when need arises.

Risk diversification

A number of insurance companies have sold off their property in prime locations.

For instance Knight Frank, who are the property agents of various insurance companies, are currently selling off Altis apartments located in Kiyovu, Nyarugenge district that belong to Soras, as well another property in Nyamirambo belonging to Sonarwa.

According the insurance law and its implementing regulations on investments, insurance companies are required to invest their assets in a manner that caters for risk diversification and avoid putting investments in concentrated investment ventures.

They are also not supposed to exceed 30 per cent of aggregate investments in equity shares of other companies, and up to 20 per cent for investments in marketable debt securities.

“I can’t say that this is exactly the existing gap in the industry, but when you compute the solvency margin you find there is a problem” said Mr Sangano.

Jean Pierre Majoro, the executive secretary of the insurance association in Rwanda, said although he is not sure if it was an issue of depleted liquidity, but some insurance companies have not been responding promptly to claims from clients.

“There was an issue of garages which I handled, their claims had not been responded to for a long time, it involved more than one insurance company, there was no payment schedule, it was until we had a meeting that the issue was attended to, some have been paid, but others are not yet paid” said Mr Majoro.

“When you open an insurance company, the first mission is to respond to claims, it is a promise you make to your clients, if you can’t keep it there will be no trust, and it is hard to be in business”

He said claims have been increasing at 10 and 16 per cent rate annually.

Liquid business

Outstanding insurance claims have been growing over the past few years, data from central bank shows by December 2013, they were Rwf13 billion, this grew to Rwf 16 billion in 2014, Rwf17 billion in 2015, and Rwf22 billion by September 2016.

“Obviously the industry is going through some turmoil, return on equity is low, and profitability is very low. For instance body injury is a big factor, the amounts are very limited, some regulations are not making it easy for the industry to perform well” said Betty Sayinzoga, the CEO of Prime Life insurance.

She said much as her company is not among those selling off property as a result of central bank intervention, she understands the situation, “Insurance is a very liquid business” she said.

Assets of insurance companies have increased, from Rwf233 billion by December 2013, to Rwf272 billion by December 2014, Rwf309 billion in 2015, jumping to Rwf345 billion by September.

In December 2013, the sector had made property investments worth Rwf31 billion, as of September this had reached Rwf49 billion. The minimum capital for both life and non-life insurance is Rwf1 billion.

“The insurer needs to have cash easily accessible in order to meet claims as and when they arise, this is the fundamental reason why a significant portion of their investments needs to be in assets that can be easily converted into cash when the need arises.

Short term insurers are supposed naturally to invest in liquid or near liquid assets in order to meet their client’s short-term obligations,” said the central bank.

“Investments in liquid / near liquid can also be diversified for example by investing in government securities, 3-year Treasury bonds, T- Bills, term–deposits in Commercial Banks etc” said a statement from the central bank.

Much as the insurance sector is generally sound, a recent report from central bank indicates that private insurer’s performance deteriorated, due to the fact that some insurance companies failed to observe prudential norms such as solvency and liquidity.

The poor performance is mainly attributed to unhealthy competition, price undercutting, operational inefficiency, inadmissible insurance receivables, weak governance and a general lack of innovation, according to the report.