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Zambia looks to control reinsurance premium outflows

20th April 2017 - Author: Steve Evans

The African nation of Zambia is reported to be looking to control the outflow of reinsurance premiums to foreign firms, preferring to attempt to control this and to help local companies to retain more of the premium income within the country.

The government of Zambia is said to be considering amendments to its insurance laws in order to stop premiums flowing as freely out of the country, according to media located there.

There has been a rising trend towards protectionism in some regions of the world, as laws to control foreign insurer and reinsurer participation in local markets have been put in place. Additionally, some countries have enacted laws that see state backed local reinsurers as preferred markets, mandating that a certain percentage of every reinsurance cession be retained by the leading local player.

Zambia is looking to follow suit and it is, in some ways, understandable that countries which are still developing economically or those with growing re/insurance markets might look to retain more of the premium income generated within their borders.

But this is considered a fallacy by many, as insurance and reinsurance markets can only really recognise the full efficiency of risk capital when they have open borders policies and transfer risk globally, to a diversified risk capital base.

Zambia’s Minister of Finance said that the new law would ensure a greater proportion of risk premium was retained within the local market, and that reinsurance business would not be able to flow as freely outside of the country as it does currently.

Taxes have also been raised as a possible route to enforce this, with a number of African countries discussing tax charges for offshore reinsurance.

Of course this has also been discussed recently in the United States, since the new Trump adminsitration has been looking closely at taxation for foreign reinsurance transactions. Other countries, particularly emerging economies, are addressing the participation of foreign reinsurers through heavy regulation and high entry barriers.

Risk transfer is at its most efficient when it can be globally diversified across borders, currencies, through many players. Of course this means established re/insurance markets have the lead, which can explain a good degree of the protectionism that has emerged in recent years, but ultimately the global diversification of risk and capital can help local markets to flourish, by removing the burden that risk retention can place on them.

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