Central Bank raises minimum capital requirements for insurance companies

BK General Insurance is one of the major players in the market. Under the new Central Bank requirements, general insurers will be expected to raise Rwf3 billion while life insurance firms are expected to have a minimum capital of Rwf2 billion. File

The cost of insurance could increase next year after the National Bank of Rwanda raised the minimum capital requirements for insurance firms – the amount of money insurers are required to hold with the central bank.

Under the new arrangement, general insurers will be expected to raise Rwf3 billion while life insurance firms are expected to have a minimum capital of Rwf2 billion, up from Rwf1 billion. The decision takes effect on January 1, 2019.

The National Bank of Rwanda said its decision aims to align the operations of insurance firms with market conditions.

The minimum capital requirements for the insurance sector were last revised in 2016.

National Bank of Rwanda Governor John Rwangombwa speaks during a past news  conference, as Vice Governor Monique Nsanzabaganwa looks on. Sam Ngendahimana.

The move, which was announced by the Central Bank Governor, John Rwangombwa, yesterday also affects banks and other players in the financial sector such as Micro-finance institutions.

General Insurers have a transition period of 3 years to raise the capital while life insurance firms have two years.

Health Maintenance Organisations have a minimum capital requirement of Rwf500 million and re-insurers with Rwf5 billion.

The move could address major challenges such as not responding promptly to claims from clients.

The development could also lead to mergers or acquisition for firms not able to raise the minimum capital requirements.

Rwanda’s insurance market is composed of 14 private insurers, 10 in general insurance and 4 in life insurance.

As of June this year, assets in the sector stood at Rwf423 billion, up from Rwf366.5 billion in the same time last year.

According to 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.

Local banks will be required to raise their minimum capital from the current Rwf5 billion to Rwf20 billion with a transition period of five years.

Banks that do not currently meet the Rwf20 billion capital requirement will be required to build this up to Rwf15 billion in the next three years and ultimately to Rwf20 billion by the fifth year.

The changes will see banks categories reviewed to four characteristics to allow operators to comply depending on their business lines and capital; commercial banks, development banks, cooperative banks and mortgage banks.

Rwangombwa also announced that the bank will move to a price-based monetary-policy framework from the current monetary-targeting regime so as to develop a money market, enable economic modelling and forecasting, and strengthen communication with the public to better anchor price expectations.

The shift to a price-based monetary-policy framework from the current monetary-targeting regime aims to cushion the financial sector against potential economic volatilities.

“While the price stability achieved under the monetary targeting regime is commendable, the ongoing economic transformation and financial sector developments are posing new challenges that may weaken the link between inflation and monetary aggregates,” said Rwangombwa.

Under the current monetary-targeting regime, the central bank managed to keep inflation low and stable, averaging 6.1 per cent from 1997 to 2017, and 1.4 percent during the first 11 months of 2018, he said.

“The banking and insurance sectors have evolved significantly with regard to size, risks and complexity. Developments in the financial system have made interest rates more important in the decision-making process of economic factors,” Rwangombwa said.

He also said that bank had decided to keep the key repo rate at 5.5 per cent.

editorial@newtimes.co.rw

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