Reinsurance is growing; what does this mean to consumers

For a long time, Uganda has had UgandaRe, Zep Re and AfricaRe operating as reinsurance companies.
But at the beginning of the year, Kenya Reinsurance Corporation Limited became the fourth reinsurer after opening a subsidiary in Uganda.

The subsidiary was opened after the acquisition of a license from Uganda Regulatory Authority.

A reinsurance company insures insurance companies against risks they underwrite to protect themselves from large claims.

The reinsurance company first made the announcement to enter the Ugandan while in its mid-year performance last year.

Jadiah Mwarania, the KenyaRe managing director, said then: “We will soon open a regional office in Uganda following approval by Kenyan and Ugandan regulatory authorities.”

The move, he said, is expected to increase opportunities for KenyaRe to leverage and eventually maximise on long-term shareholder value. The company’s financial results also revealed a loss in profitability owing to increase in claims settlement.

“We posted a 21 per cent decrease in profit before taxation. The figures for the period ended June 30, 2019 stood at Ksh1.3b compared to Ksh1.7b for the period ended June 30, 2018, this was as a result of an upsurge of claims compared to the same period in 2018,” Andrew Ongicha the Kenya Re communications assistant, said.

According to Insurance Regulatory Authority (IRA), entrance of KenyaRe will create a competitive environment and greatly improve on service delivery in the country.

Mariam Nalunkuuma, the IRA senior communications officer, told Daily Monitor last week that KenyaRe’s coming to Uganda in addition to creating employment, creates competition among the reinsurance sub-sector, which in the long run proves beneficial to insurers.

“KenyaRe has come as an independent entity and it will bring services closer to insurers. It will also create competition which is good, not forgetting employment. Local content guidelines require for some jobs to be awarded to Ugandans so people will be employed,” she said.

KenyaRe, Nalunkuuma also said, will improve decision making and consultation for insurers.

“Insurers who normally consult reinsurers before undertaking certain risks, will be served quicker and better since the reinsurers have opened up offices near them. This is different from other modes of communication that could take a while before receiving a prompt response,” she noted.

As a ripple effect, quicker service provision to insurers signifies quicker service delivery to policyholders and the public.

Competition amongst the reinsurers also allows for competitive pricing amongst the reinsurers.

KenyaRe, a seasoned reinsurer is also expected to promote professionalism among the players in the market.

Inadvertently, the public, Nalunkuuma said will be served better with prudent underwriting. The company is also expected to add to Uganda’s tax revenue.

Capital flight

One of the concerns IRA has always pointed out is capital flight through reinsurance to companies abroad.
To keep some money in the country, IRA, through the Insurance Act, prescribed mandatory cession to reinsurance companies operating here.

For instance, while national reinsurer, Uganda Re is guaranteed of mandatory cession of 15 per cent, ZEP-RE is mandated 10 per cent and 5 per cent to Africa-Re.

ZEP-RE (PTA Reinsurance Company) was established under an Agreement of the Heads of State and Governments of the Comesa region in 1990.

Africa Re was set up by 36 African states in 1976, following a recommendation by the African Development Bank (AfDB) to develop the insurance and reinsurance industry in Africa through increased underwriting and retention capacities, and support to African economic development.

However, IRA said no preferential treatment will be given to KenyaRe which will be required to aggressively compete for business.

Nalunkuuma said companies are required to retain some money in the economy noting that the company’s mandatory minimum capital requirement of Shs10b has already been added to the economy.

Meanwhile, IRA has this year licensed 128 insurance players from 114 last year, which the regulator says is a sign that the market is growing. Increase in the market players will in addition to boosting competition, eventually increase insurance uptake. The country’s insurance penetration is currently only 0.8 per cent.