In this legal briefing we focus on the recent Circular on "Conditions for Dealing with Foreign Reinsurers and Reinsurance Brokers" issued by the Tanzania Insurance Regulatory Authority.

Background

On 11th December 2017, the Tanzania Insurance Regulatory Authority (TIRA) issued Circular No.055/2017 Conditions for Dealing with Foreign Reinsurers and Reinsurance Brokers (the Circular) with a view to revisiting the existing requirements relating to reinsurance arrangements for insurance companies transacting in Tanzania. The Circular took effect from 1st January 2018. The main objective of the Circular is to enhance enforcement of section 31(2) as well as Part VII of the Insurance Act, 2009 (Insurance Act) which give the Commissioner for Insurance mandate to control reinsurance arrangements. TIRA issued the Circular after observing some insurance companies breach certain reinsurance arrangements in Tanzania. TIRA chose to address key challenges in reinsurance dealings, which include:

  • excessive use of International Facultative Reinsurance Arrangements in situations that could be accommodated under Treaty Reinsurance Arrangements;
  • 100% externalization of risks which could partly be retained locally;
  • fronting of extremely low value risks which results into low premium levy payable to TIRA;
  • poor participation of local insurance companies in assuming parts of risks intended to be externalised through co-insurance arrangements;
  • tendency of insurers engaging in co-insurance arrangements with related companies based in other jurisdictions;
  • local insurers colluding amongst themselves so as not to assume certain risk which may result in unnecessary externalisation of risks that can be insured locally;
  • dealing with poorly rated or unrated foreign insurers as well as unaccredited reinsurance companies and brokers;
  • concealing the ultimate destination of reinsurance premium payments through the reinsurance brokers or a series of reinsurance brokers;
  • seeking externalization of risks whose validity period has expired or significant time has lapsed since commencement of cover; and
  • non-disclosure of reinsurance commission or fronting fees payable to local insurers.

Due to the lessons learnt when implementing the Circular in the year 2018, TIRA revised the Circular and on 31st December 2018 issued a new Circular No.055/2017 (Revised Version 01): Conditions for Dealing with Foreign Reinsurers and Reinsurance Brokers (the Revised Circular). The Revised Circular has largely retained the provisions of the Circular but has also incorporated amendments to the Circular.

Key Highlights

Provisions Retained in the Revised Circular

The following are some key requirements of the Circular that have been retained and reiterated due to their importance in the Revised Circular -

  1. Prior approval of all foreign reinsurance arrangements before implementation by insurers – insurers must submit drafts of reinsurance treaties to TIRA before 30th September each year. Further, all finalised reinsurance treaties must be submitted before 30th November for review and approval by TIRA.
  2. Restrictions on externalisation of risks – the Revised Circular maintains several restrictions on externalization of risk like: restrictions on fronting of risks, requirement to exhaust local capacity before externalization, restriction on externalisation of expired risks, restriction on externalisation of long term insurance business in Tanzania, etc.
  3. Irregular bundling and repackaging of risks – irregular bundling and repackaging of risks with the intention of complicating risk exposure and promoting unnecessary externalization is prohibited.
  4. Formation of insurance pools ¬– underwriters are required to form insurance pools or consortia for risks that will be classified by insurers' association and approved by TIRA as large and complex risks.
  5. Insurers must only use local or accredited reinsurance brokers – insurers seeking to externalize insurance risk may use services of locally registered reinsurance brokers or locally accredited reinsurance brokers.
  6. All foreign reinsurers and reinsurance brokers seeking to transact in Tanzania must be accredited by TIRA ¬– the Revised Circular highlights the conditions to be fulfilled by foreign reinsurers and reinsurance brokers in order to earn an Accreditation Certificate from TIRA.
  7. Exhaustion of local capacity before externalization – before externalising risk, the insurer must demonstrate that all local insurers have been invited in assuming parts of the risk and documents of the invitation to be submitted as evidence to TIRA.
  8. Insurers are required to disclose certain information – insurers are required to disclose to TIRA certain information such as: identities of reinsurers receiving premium from Tanzanian insurers; fees received for reinsurance commission or fronting fees; and quarterly treaty accounts.
  9. Credit rating of all Tanzania registered insurance companies ¬– all insurers registered in Tanzania must undergo periodic credit rating to establish financial soundness at least once in every three years. Further, every insurer currently operating in Tanzania must undergo its first credit rating before 31st December 2020.

New Provisions in the Revised Circular

The table below highlights some notable changes brought by the Revised Circular:

Clause Previous requirement in the Circular Current requirement in the Revised Circular
Minimum levy payable to TIRA on foreign facultative placements

3% of applicable gross premium or USD 200 whichever is greater; plus 20% of the applicable fronting fee or reinsurance commission in excess of 12%.

1.5% of applicable gross premium or USD 200 whichever is greater; plus 1.5% premium levy prescribed in the Insurance Regulations.

Non-response to an invitation to participate in insurance of risks constitutes a serious offence

 Insurers invited by another insurer must respond to the invitation within 5 working days. Non responses shall attract sanctions by the Commissioner under the Insurance Act

Insurers invited by another insurer must respond to the invitation within 2 working days. Non responses shall attract sanctions by the Commissioner under the Insurance Act.

The Insurance Act provides for a general penalty of up to TZS 5 million.
Submission of quarterly treaty accounts by Tanzanian registered insurance companies Not provided.

All insurers are now required to submit Quarterly Treaty Reinsurance Statements to TIRA.

Requests for remittance of treaty reinsurance premium shall not be considered in absence of appropriate reinsurance statements.

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