GLOBAL FINANCIAL CRISIS: Local insurers playing safe, amid global financial crisis

Rwanda insurance companies have been advised not to invest in Europe, USA and Asia until the turmoil subsides Insurers in Rwanda have said, they have not yet felt the pinch of the spiraling global financial crisis, but warned that insurance premium could increase if the financial turmoil persisted. The global financial crisis which started in the United States with American stock markets in July 2007, has already had a spill-over effect on European banks, insurance companies and other major economies. Corneille Karekezi, the president of the Association of Insurance Companies in Rwanda (ASSAR), said that all local insurance companies are transferring part of their risk portfolios to regional re-insurers like ZEP-RE and AFRICA RE. In an exclusive interview with The New Times, Karekezi said that Rwanda insurance companies have been advised not to invest in Europe, USA and Asia until the turmoil subsides. “We should ensure that local companies, banks and other financial institutions with foreign affiliates do not embark on capital flight to rescue their parent companies,” he said. However re-insuring with regional re-insurers is not guarantee to avert the impact of the global financial crisis on insurance companies in the country. African re-insurers also purchase retrocession from international re-insurers already affected by the crisis, something that may undermine Rwanda insurance companies’ efforts of opting for regional re-insurers by increasing re-insurance premium. “If the re-insurance premium shoots up in the long run, insurance premium on the local market will increase,” Karekezi said. However the total loss to the insurance sector is not yet known because of the sophistication of international financial products. But re-insurers estimate it could be around 20 percent of their total wealth. “In the short run there are no direct impacts on the operations of insurance companies in Rwanda since we don’t hold investments in international stocks and asserts like mortgages. Economists have already predicted an inevitable drop in Africa’s export and tourism receipts, remittances from abroad and Aid flows as a result of the financial meltdown. They say that this will affect governments’ spending and investment. Karekezi believes this will impact on the turnover of insurance companies. “Reduced traveling and investments in advanced countries will indirectly affect premium generated from travel insurance companies,” he said. This comes at a time insurance penetration in the country is very low at less than two percent. The average insurance premium per capita in Rwanda is $2.1 compared to $5 in Sub-Saharan Africa, excluding South Africa. Ends

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GLOBAL FINANCIAL CRISIS: Local insurers playing safe, amid global financial crisis