Page 5 - Print Version Volume 22 - Number 1126
P. 5

Fortune Vol. 22 No. 1126 Nov. 28, 2021                                                                           NEWS                                Page 5

Central Bank Spurns . . . (Cont'dfrom PAGE1)
investment amount down to five
or seven percent.

However, the regulators rejected
the request and communicated
their decision to the Association
on November 25, 2021. A letter
signed by Belay Tulu, head of the
insurance supervision directorate
at the NBE, says the insurers'
appeal is not "authentic" and
"does not align" with the national
development agenda.

Reads the letter: “The alleged
negative impact on the growth and
development of the industry and
discouragement of investment in
the sector posited as grounds for
scaling back the 15pc minimum
investment threshold was not
substantiated by any evidence and
lacks authenticity.”

Industry observers believe the         The central bank's insurance supervision directorate maintains that there is insufficient evidence backing insurers' claims that the 15pc investment
requirement by the NBE would                                                                                                                                              requirement will hurt their bottom lines.
have no significant impact
on the insurance companies.            aggregate capitalisation of 10.6    bonds. The bonds give two             The plea the Association leaders    are set aside from net profit,
Abdulmenan Mohammed, a                 billion Br, with the 17 private     percentage points higher than the     made with the regulators failed     according to a Chief Executive
financial analyst, does not see        insurance firms accounting for      interest rate on saving deposits      to include concerns over the low    Officer (CEO) of one of the oldest
the requirement threatening their      close to 72pc.                      with a three-year maturity period.    yield rate. The letter from the     private insurers companies.
liquidity position and profitability.                                      Insurers earn a significant income    lobby group did, however, request
                                       The CEO is also displeased with     by saving their money in the form     clarification on the definition of  “A quarter of the net income
"The impact will not be that           the central bank's allegation that  of time deposits. The average         net income. While the regulators    of insurance companies will be
considerable," he said.                the plea was unsubstantiated.       saving interest rate stands at eight  say the investment is to be made    tied up,” the CEO told Fortune.
                                                                           percent, while the yield on time      from net income, they remained      “This will make the industry less
The industry feels otherwise.          "I assume they're telling us to     deposits can reach 15pc.              unclear whether it factors legal    attractive to investors.”
The central bank's requirement         conduct a study," the CEO told                                            reserves. They later clarified net
fails to consider the industry's       Fortune. “Yet, the NBE itself       “Investing in DBE bonds is like       income is profit after tax.         Insurers had also appealed
capability, says a senior executive    didn’t conduct any study before it  losing money intentionally,” says                                         to extend the directive's
of a private insurance company.        picked the minimum threshold."      the CEO of one of the insurance       The industry remains unclear        enforcement date to July 1,
                                                                           companies that entered the            where the mandatory investment      2022, from September 1, 2021.
“Although its impact differs, its      Industry players are concerned      market recently.                      is deducted before legal reserves   Regulators at the NBE did not
effects will be felt across the        with the low yield rate of DBE                                                                                deem it fit to accept the proposal.
industry,” said the Chief Executive
Officer (CEO).

The insurance industry has an

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