The National Bank of Ethiopia (NBE) raised the minimum paid-up capital of insurance firms by six-fold. The revised ‘Minimum Paid-up Capital for Insurance Company’, which is effective as of September 15, 2022, replaced the existing threshold introduced in 2013.
The new capital requirement to obtain a general insurance license is 400 million birr, up from 60 million birr. The minimum capital for long-term insurance licenses was also raised from 15 million to 100 million birr. A company needs to deposit 500 million birr in a closed account to obtain a license for both, which was 75 million birr under the old directive.
Existing insurance companies whose paid-up capital is below the new threshold are given a five-year window period to meet the new minimum threshold by the end of June 30, 2027. However, these insurers are required to submit an action plan to the NBE by October 16, 2022.
Out of the 18 existing insurance companies in the country, only seven have capital of more than 500 million birr, according to NBE’s report. The insurance industry has been struggling with low market penetration and declining premiums in a stiff competition for the limited market niche.
However, the old directive remains active for new insurance firms in the pipeline until September 15, 2023. This means organizers of new insurance firms can attain a license under the existing directive in the next year. A discussion is underway to adjust license fee required to acquire new license and renew existing ones. The fee is expected to be adjusted by 2000 percent, though that is still under discussion.
The new directive states that insurance companies in the process of share subscription that successfully collect a minimum paid-up capital of 60 million birr for general insurance business, 15 million birr for long-term insurance business, or 75 million birr for both, and submit a final application to NBE within one year after the effective date of the new directive, shall get the license.
TheReporterEthiopia
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