Rwanda Central Bank: No licence to new investment in insurance

Sunday March 5 2017

The headquarters of National Bank of Rwanda

The headquarters of National Bank of Rwanda (BNR), the central bank, in Kigali. PHOTO | FILE 

By ESIARA KABONA

The National Bank of Rwanda will not issue further licences to new investment in the insurance sector to guard against dilution of underwritten premiums.

Analysts believe ring-fencing the market for two public and 13 private insurers is a sign the market had reached saturation.

BNR, which also regulates the insurance sector, suspended issuing new licences on grounds it was strengthening the financial stability and soundness of the sector.

Director-General Financial Stability Directorate at BNR Peace Masozera Uwase said the insurance receivables which have remained high were negatively impacting the solvency levels of insurance companies.

“Private insurance companies have been registering poor performance (operational losses) in the past mainly driven by price undercutting, which results in low levels of premiums recorded, as well as high claims ratios and management expenses,” said Ms Uwase.

Firms in the red

Latest data from BNR show private insurers recorded a net loss of Rwf4.4 billion ($5.3 million) in 2016 compared with Rwf2.7 billion ($3.2 million) in 2015.

The private insurers’ claims ration has remained above the 60 per cent minimal levels set by the central bank. As of December 2016, the claims averaged 67 per cent.

The companies’ expenses are above the minimal 30 per cent. By December 2016 the ratio had reached 60 per cent, reducing shareholders earnings.

The return on capital dropped from -3 per cent in the third quarter to 3.3 per cent in the fourth quarter of 2016. The minimum set by central bank is 4 per cent.

Return on equity by December was recorded at negative 19.4 per cent. The minimal industrial average required by the central bank is 16 per cent.

A number of unnamed-struggling private insurers have just injected Rwf6.7 billion ($8 million) fresh capital into their operations, increasing private players’ assets by 16 per cent (Rwf134 billion) in December 2016.

In order to recoup their investment, market players say they needed protection from competition.

“I presume the regulator has analysed the size of the market and thought it right that current players have to grow proportionally with the size of business and the economy,” said Esdra Nkundumukiza commercial director Soras general insurance.

The insurers are required to have 100 per cent solvency margin, however combined the 13 private insurance companies average 78 per cent.  With low solvency margins, the assets the insurance companies hold do not adequately fund liabilities.

Mr Nkundumukiza suggests the regulator should now enforce the minimal price for motor vehicle insurance, where price undercutting is threatening to bring down the industry.

While the private insurers’ assets remain small, Rwanda Social Security Board (RSSB) and Military Medical Insurance (MMI) have a strong asset base driven by the growing profits.

Combined MMI and RSSB recorded Rw29 billion ($3.5 billion) in profits as at December 2016.

The profitability of the two public insurance services providers helped the sector register 24.6 billion ($29.8), a slight increase from Rwf24.3 billion ($29.4 million) recorded in December 2015.

The Rwanda insurance sector, like many in the region, is also bogged down by fraud and reduced premiums.

However, BNR is optimistic the directive on how to conduct insurance business in the second half of 2016 that bars insurers from selling insurance products on credit and prohibiting the companies to undercut prices is set to reposition the insurance industry on a strong footing.