ASSESSMENT OF THE REINSURANCE BUSINESS IN DEVELOPING COUNTRIES
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ASSESSMENT OF THE REINSURANCE BUSINESS IN DEVELOPING COUNTRIES
ABSTRACT
There are differing perspectives on the impact of cross-border reinsurance business in developing countries. According to the literature, cross-border reinsurance plays an important role in enhancing risk absorbency, solvency, and know-how, as well as providing foreign money to emerging nations’ insurance industries.
According to certain research, cross-border reinsurance is essential for providing foreign capital to the insurance industry in the aforementioned nations.
Others argue that an overreliance on cross-border reinsurance has a negative impact not just on a country’s foreign currency reserves, but also on the industry’s contribution to the national economy.
The Ethiopian insurance industry relies entirely on cross-border reinsurance transactions. Despite the need of strong reinsurance company regulation for the local insurance industry’s stability and expansion, Ethiopia has yet to create such legislation.
This study presents insights on the impact of cross-border reinsurance on the insurance industry and the economy, as well as industry management’s perspectives of reinsurance business rules in Ethiopia.
The study used ten years of data, which included insurance company financial transactions, GDP, and sample primary data on insurance industry management’s impressions of reinsurance business laws.
A quantitative and qualitative analytical research method is applied. The findings indicate that cross-border reinsurance has a detrimental impact on the insurance industry’s financial performance.
The insurance industry contributes very little to the country’s economy. The awareness gap surrounding reinsurance regulation continues at both management levels.
Lack of awareness led the industry to participate in worldwide business without the necessary legislation. Both the government and the sector should work together to establish a regulatory framework and proper initiatives that will improve the industry’s competitiveness on a national and global scale.
Chapter One: Orientation 1.1 Ethiopian Context
The Federal Democratic Republic of Ethiopia (FDRE) is located in the Horn of Africa. Ethiopia is bordered by Eritrea in the north, Djibouti in the northeast, Somalia in the southeast, Kenya in the southwest, and Sudan in the west. Ethiopia covers 1,235,000 square kilometres, which is equivalent to the combined size of France and Spain.
Approximately 65% of the land mass is arable, with approximately 15% cultivated. The population is expected to be 79.5 million, with more than half of them under the age of 20 and approximately 85% living in rural areas.
The population density per square km is approximately 50. Addis Abeba, the capital, with a population of around 2. 8 million people (CSA, 2010).
Ethiopia is a multicultural and multiethnic country with over 83 languages. The official language, Amharic, is spoken by 60% of the people, but two other languages (Oromigna and Tigrigna) are also extensively spoken. English is widely spoken, particularly in major cities.
Ethiopia has rocky geography, with an elevated central plateau ranging in height from 2,000 to 3,000 metres. In the north and centre of the nation, there are approximately 25 mountains with peaks that climb beyond 4,000 metres.
Dallol, the world’s lowest point at 48m below sea level, is located in the country’s northeast and features a living volcano (Erta Ale) and colourful hot brine springs.
To the north, Lake Tana is the source of the famous Blue Nile River, which flows for 850 miles until joining the White Nile at Khartoum, Sudan.
The Nile River is the world’s longest river, stretching north for approximately 4,160 miles from East Africa to the Mediterranean Sea. Similarly, the Omo River starts in the western section of the Ethiopian plateau and flows into Lake Turkana near the Kenyan border.
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