TIRA Circular On Conditions For Dealing With Foreign Reinsurers And Reinsurance Brokers

In this legal briefing we focus on the recent Circular on "Conditions for Dealing with Foreign Reinsurers and Reinsurance Brokers" issued by the Tanzania Insurance Regulatory Authority.

Background

On 11th December 2017, the Tanzania Insurance Regulatory Authority (TIRA) issued Circular No.055/2017 Conditions for Dealing with Foreign Reinsurers and Reinsurance Brokers (the Circular) with a view to revisiting the existing requirements relating to reinsurance arrangements for insurance companies transacting in Tanzania. The Circular took effect from 1st January 2018. The main objective of the Circular is to enhance enforcement of section 31(2) as well as Part VII of the Insurance Act, 2009 (Insurance Act) which give the Commissioner for Insurance mandate to control reinsurance arrangements. TIRA issued the Circular after observing some insurance companies breach certain reinsurance arrangements in Tanzania. TIRA chose to address key challenges in reinsurance dealings, which include:

excessive use of International Facultative Reinsurance Arrangements in situations that could be accommodated under Treaty Reinsurance Arrangements; 100% externalization of risks which could partly be retained locally; fronting of extremely low value risks which results into low premium levy payable to TIRA; poor participation of local insurance companies in assuming parts of risks intended to be externalised through co-insurance arrangements; tendency of insurers engaging in co-insurance arrangements with related companies based in other jurisdictions; local insurers colluding amongst themselves so as not to assume certain risk which may result in unnecessary externalisation of risks that can be insured locally; dealing with poorly rated or unrated foreign insurers as well as unaccredited reinsurance companies and brokers; concealing the ultimate destination of reinsurance premium payments through the reinsurance brokers or a series of reinsurance brokers; seeking externalization of risks whose validity period has expired or significant time has lapsed since commencement of cover; and non-disclosure of reinsurance commission or fronting fees payable to local insurers. Due to the lessons learnt when implementing the Circular in the year 2018, TIRA revised the Circular and on 31st December 2018 issued a new Circular No.055/2017 (Revised Version 01): Conditions for Dealing with Foreign Reinsurers and Reinsurance Brokers (the Revised Circular). The Revised Circular has...