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Members of the Ethiopian Insurers Association agreed to form the reinsurance firm based on the new directive that will be effective in the coming week.
The directive issued by National Bank of Ethiopia (NBE), regulatory body for financial institutions, allows interested Ethiopians to form reinsurance firms in the country. This financial market is new to the country. Previously insurance companies in Ethiopia were using foreign based reinsurers.
A few weeks ago, NBE stated that the directive, based on insurance business proclamation no. 746/2012 article 5(8) and 58(2) will be effective as of May 1 and interested organizers of the new type of company must register to get the license.
According to Kiros Jiranie, president of the association and CEO of Africa Insurance, all insurance companies under the association have agreed to form the reinsurer firm together.
The association president told Capital that the members have agreed to form the organizing committee to process the formation of the new company. “The association has taken the initiative to follow the formation of the organizing committee,” he said.
He said that other potential buyers or bankers will join the share company.” Before we go to NBE we have to fulfill the requirements stated on the directive,” Kiros said.
The reinsurance company establishment directive no. SRB/1/2014 states that the paid up capital of the reinsurer must be a half billion birr and a single shareholder can’t own more than 5 percent of share, which is similar to other rules governing financial institutions.  
The 2012 proclamation article 5(8) states that the National Bank may grant a license to a reinsurer.  According to the NBE directive, the establishment of national reinsurance companies promotes financial resource mobilization and reduces costs related to reinsurance across borders.
It also states that national reinsurance companies enhance underwriting capacity and solvency of direct insurers by promoting technical support and cover against accumulated and catastrophic losses, and the existence of national reinsurance companies simplifies treaty negotiations, settlement of claims and payment of ceded premiums in domestic currency within the shortest possible time.
According to the rule, the reinsurance company must be established as a share company stipulated in the commercial code of Ethiopia and can offer non-life and life reinsurance.
Shareholdings of anyone, except the federal government of Ethiopia or public enterprises fully owned by the federal government of Ethiopia, in a reinsurer shall not exceed 5 percent of the total subscribed capital either on his/her own or jointly with a spouse or persons who are below the age of 18 and related to him/her by blood.
Ethiopian insurance firms have been using foreign reinsurance firms for their guarantees, but on several occasion the local private insurance firms have asked the government to explore the possibility of establishing locally owned reinsurance firms.