The Central Bank will not issue operational license to new firms entering the insurance market in the country for an undisclosed period of time, a move it says is aimed at ensuring stability and integrity of the financial sector.
According to a statement issued by John Rwangombwa, the Governor, National Bank of Rwanda, the move takes immediate effect beginning Thursday, Feb 23.
This means that over the freeze period, there will be no new entrants into the local insurance sector.
This will however not apply to instances of mergers, acquisitions, takeovers or purchase of shares of insurance companies, according to the statement.
The move will also not affect the expansion processes of new firms as they open up branches and approve rollout new products into the market.
This decision follows concerns that the private insurance sector was experiencing multiple challenges including unhealthy competition leading to price undercutting.
According to the recent monetary policy and financial stability statement issued on Wednesday this week, the private insurance as a subsector made a loss of about Rwf4.4B after tax.
"The net loss for private insurers was Rwf4.4bn as at the end of December compared to a loss of Rwf2.7 Billion as at the end of December 2015.
“This performance was mainly driven by unhealthy competition among private insurers that led to price undercutting and an erosion of premiums underwritten. This was further exacerbated by high claims ratio and management expenses," the Monetary Policy and financial stability statement read in part.
The assets from the sector increased by 16 per cent to Rwf134bn by December 2016 largely due to Rwf 6.7bn fresh capital injected to the sector.
Insurance penetration continues to stagnate at 2 per cent largely due to lack of innovation, poor customer analysis and lack of customer service.