Insurance regulation in Africa: CIMA – the benefits and challenges

Understanding changing insurance markets and regulatory developments is critical to making sure multinational programmes are compliant and competitive, no matter where they are located, and the implications can be challenging. Insurance regulators are increasingly looking to nurture risk capacity, cultivate insurance expertise and retain premiums within their insurance markets – and this can have important consequences for multinational companies, particularly in terms of compliance.

As Pete King, head of network partner practice, EMEA and managing director, CEE, AIG, points out: “Whether it is driven by protectionism or a desire to develop local insurance markets, each country has its own rules and regulations on insurance, from compulsory covers to tariffs to mandatory local retentions. As a result, insurance can be a complex and time-consuming process for multinational companies to navigate.”

In Africa, one organisation that has helped to simplify the insurance process is the Conférence Interafricaine des Marchés d’Assurances (CIMA). This regional insurance oversight body was created based on the notion that a large single market with common rules and a common regulatory authority will result in a more effective and efficient supervisory structure and will promote stable and secure insurance markets in the region.

CIMA covers 15 countries in Francophone Africa and was established by treaty in 1992, bringing virtually all insurance supervisory, legislative and regulatory powers under the CIMA Code. According to the code, its aims include “taking all necessary measures to strengthen and consolidate close cooperation in the field of insurance”, and “pursuing the policy of harmonisation and unification of legal and regulatory provisions relating to technical insurance and reinsurance operations”.

“But it is not just about having common rules and supervisory cooperation,” says Mr King. “It is also about reinforcing cooperation, as well as protecting and developing the integrated local insurance markets. The primary goals are to provide more regulatory capital for CIMA insurers and retain more of the insurance premiums in CIMA countries and within the region.”

As part of the desire to retain premiums within the region, and in common with many territories around the world, the CIMA Code prohibits the direct insurance of any risk concerning any person, asset or liability situated in a member country with a non-admitted insurer. As an exception to this rule, non-admitted policies are allowed only for very specific lines of business and they require prior approval from the local regulator.

Foreign ownership of insurance companies domiciled in CIMA member states is permitted under the CIMA Code. Companies with foreign ownership operate under the same laws as locally-owned, locally-domiciled companies and must satisfy local legislation and regulatory requirements.

Changes to the code
Aimed at bolstering the strength of regional insurers and retaining more premiums locally, the CIMA Code has seen a number of significant amendments in recent years, to include:

• The minimum capital requirements were increased from XAF/XOF1bn ($1.70m) to XAF/XOF5bn ($8.52m) for joint stock insurance companies and from XAF/XOF800m ($1.36m) to XAF/XOF3bn ($5.11m) for mutual, reflecting the regulator’s apparent desire to encourage smaller companies to consolidate, so that the market is served by larger, financially strong insurers.
• Local mandatory retentions were increased from 25% to 50% for the main lines of business, to encourage the retention of even more premiums within individual countries and within the CIMA region.
  – Certain specific lines, notably cargo, motor, accident, illness and life risks are retained at 100%.
  – There are a few specific exceptions to the retention rule, notably marine and aviation hull and liabilities, and offshore oil risks.
• In an effort to reduce insurers’ credit risk, cash before cover has been in effect since 2011, barring insurance companies from issuing any policy documents until the full premium has been received – for new policies and renewals.
  – Failure to comply may result in suspension of local insurers’ licences.
  – Multinational companies must plan ahead to ensure early premium payment and contract certainty for insurance policies bought in CIMA countries.
• To improve the region’s foreign-exchange reserves, the Central African Central Bank has recently undertaken a tighter monetary stance. While not an amendment to the CIMA Code, multinational companies will need to be aware of the wider issue of foreign exchange restrictions in the region.

Even with the above restrictions, the benefits of a “harmonised and unified” regulatory environment within the CIMA region are clear, as Siham Rami, network partner relationship manager, AIG, points out: “Knowing that the same regulations and supervision apply to all 15 countries brings clarity and consistency, as well as greater assurance that insurance programmes are compliant. It also facilitates risk placement, and there are no set tariffs in any of the countries covered by the CIMA Code (except for third-party motor liability), all of which are certainly advantageous to clients.”

CIMA anticipates that the changes to the code will not only strengthen the local market and reduce its reliance on outside reinsurance markets, but also simplify the supervision of insurance for the benefit of local consumers and companies operating in the region.

Although a unified regulatory environment presents tangible benefits, navigating the different regulatory requirements remains challenging. It is important that insurers, brokers and multinational clients work together to meet the local requirements and ensure compliance of multinational programmes.

Contributed by AIG