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Chuks Udo Okonta
Mandatory cession, preferential tax treatment and supervisory exemptions offered to local reinsurers create an unlevel playing field, hinder competition and deny insurers the benefit from the transfer of technical know-how from foreign reinsurance companies, hence should be reconsidered, the International Monetary Fund (IMF) has canvassed.
The IMF said this in a report entitled: Nigeria: Publication of Financial Sector Assessment Program Documentation – Detailed Assessment of Observance of Insurance Core Principles, stating that
reinsurance practice in Nigeria is influenced by market development considerations, at the cost of possible loss of knowledge transfer.
It noted that insurers are required to retain at least five per cent of risks to discourage fronting of business, stressing that reinsurance with foreign reinsurers requires NAICOM’s approval.
“Subject to the insurer demonstrating that it has exhausted local reinsurance capacity, insurers must satisfy the mandatory cession to Africa Re. before they may seek coverage with other reinsurers.
“Mandatory cession, preferential tax treatment and supervisory exemptions create an unlevel playing field and hinder competition,” it posited.
The organisation maintained that local insurers could benefit from the transfer of technical know-how if the bars are lifted, adding that the exclusive use of local reinsurers for certain types of business should be reconsidered.