By Timo Shihepo & Tileni Mongudhi
South Africa-owned insurance companies find themselves at odds with the Namibian government, due to the former’s reluctance to keep money collected for reinsurance purposes in the country.
The insurance giants have resorted to the courts after the government enforced a 1998 legislation compelling the insurers to cede 12.5% of every short- and long-term insurance policy in the country to be reinsured in Namibia by state-owned Namibia National Reinsurance Corporation (NamibRe).
A reinsurance provider is basically an insurance company for ordinary insurance companies, who are unable to carry the full risk of the policies they provide to the public.
The companies, Old Mutual Life Assurance Company of Namibia, OUTsurance Namibia, Santam Namibia, Hollard Insurance Company of Namibia and Hollard Life Namibia have refused to adhere to the law that compels them to give 12.5% of every contract written worth R100,000 to the state.
The money is supposed to be collected by NamibRe, which was created to fill the reinsurance void in the country. The establishment of NamibRe was necessitated by the fact that Namibian registered insurance companies kept passing that responsibility to their South African parent companies. As a result, large sums of money collected in Namibia have been shipped abroad and invested in the South African economy. Data from Namibia’s non-banking financial sector regulator indicates that more than R6 billion collected for reinsuring policies has flown out of the Namibian economy since 2009.
To curb the capital outflow, NamibRe was established by an Act of Parliament in 1998 to become a Namibian enterprise tasked with carrying out reinsurance services in the country. Key aspects of the law are that insurance companies will have to ensure that 12.5% of the reinsured portion of all policy premiums worth over R100,000 that are ceded to NamibRe. It also requires that in the event an insurance company is unable to shoulder the full risk of a policy it is underwriting 20% of what is being reinsured should be reinsured in Namibia. It also gives NamibRe first right of refusal for all reinsurance needs of companies operating in Namibia.
When the law was passed the insurance companies rebelled. The government was forced to compromise and agreed to what was called a ‘net-retention’ of 5%. This meant NamibRe was only entitled to 5% of any portion of a policy that is being reinsured. It was also agreed that the full requirement by law will be effected at a later date when NamibRe gains capacity as at the time, it was deemed to have lacked such capacity.
Seventeen years later, the Namibian government through its finance minister decided to fully enforce the law and do away with the net-retention system. According to industry insiders, this was because insurance companies were allegedly manipulating the system in such a way that their insurance books were growing. The funds they were sending for reinsurance in their parent companies in South Africa were also growing, but what they reinsured in Namibia through NamibRe remained stagnant.
Data from the Namibia Financial Institutions Supervisory Authority reports shows that R47.6 million left the country in 2009, R483.6 million in 2010, R911.3 million in 2011, R679.9 million in 2012, R786.3 million in 2013, R1.06 billion in 2014, R1.05 billion in 2015 and R1.057 billion in 2016.
Further information shows that the Namibian insurance industry in 2017 was worth R13 billion but NamibRe just made R233 million from the said policies. This is because the said insurance companies have been manipulating the figures to make it look like they are not making much money.
This year, a number of insurance companies took the government to court claiming that the 12.5% was excessively harsh and severe. They have also said that the law compelling them to part with 12.5% is flawed and want the law invalidated. Companies suing government have, however, refused to comment, stating that the issue was sub judice.
Namibia’s Finance Minister Calle Schlettwein, countersued and is asking the court to compel the insurance companies to start complying with the law, despite their pending case which is supposed to review the validity of the 1998 law.
Namibia is, however, just trying to comply with United Nations requirements. The Southern Times has seen a United Nations (UN) trade and development document on insurance and reinsurance. The document proves that the Namibian government was right to create NamibRe as well as to ask for the 12.5% on every policy underwritten.
The document states that under the UN agreement a proportion of the reserves arising from reinsurance operations should be retained in the country of origin. This is meant to provide a measure of protection to the direct insurer and policyholder, and also to provide a contribution to the economy of the country of the ceding company (in this case NamibRe) in terms of investment and savings of foreign exchange.
The United Nations has strongly suggested that the governments of developing countries should avail themselves of the advisory services and training opportunities, which are currently offered under the United Nations Development Programme.
The UN has also said developing countries in which national insurance markets are sufficiently well established, after carrying out technical and financial studies, should establish regional reinsurance institutions.
Furthermore, the document states that developed countries, which provide aid to developing countries should not prescribe conditions limiting the rights of the developing countries to require insurance to be placed in the national budget.