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Insurance with a conscience.

Eritrean independence created a country with no insurance cover, compounding disasters, and limiting the risks people could take in the country's reconstruction. But as Jennie Street reports, all this is changing.

In the beginning, says Mr Zeru Woldemichael, Director of the National Insurance Corporation of Eritrea "we had to go begging to the reinsurance market in Europe. Now brokers are coming to us because they are recognising that Eritrea is honest, open, and can be relied upon".

The one and only insurance company in Eritrea, charmingly known as NICE, is entirely Government owned and managed. But, as Ato Zeru smiles wryly, "I think it is the only one to make dividends into the Treasury."

Until Liberation in 1991, the insurance market in Eritrea was run entirely out of Addis Ababa by the Ethiopian Insurance Corporation (EIC). All management was in the hands of Ethiopians, and Eritrean staff had no real comprehension of insurance business.

When the Ethiopians were driven out in May 1991, the office in Asmara, the Eritrean capital, was left in the hands of totally unskilled people. Since all premiums collected in Asmara had been transferred to Addis, those insured were left with no cover.

Eritrea was left without reinsurance cover, exposed to any peril which would otherwise have been protected by the international reinsurance market.

A treaty agreement signed with the international reinsurance market in October 1991 allowed NICE to become a fully-fledged insurance service. Its Board of Directors consists of five Government Ministers, and is Chaired by the Minister of Finance.

Insurees were told to arrange fresh cover, but no outstanding claims, nor refunds on unexpired risks were paid until agreement was reached in mid 1992 with the Ethiopians, after lengthy negotiations.

EIC agreed to settle outstanding claims and return the premiums for outstanding risk to Eritrea, and NICE agreed to collect outstanding premiums for Ethiopia.

Like so many skilled Eritrean professionals, Ato Zeru responded to the call from his country after Liberation and left his wife and family in England. He arrived in 1991 to steer NICE through the maze of complicated international negotiations and reconstruction.

One of only three Eritreans with any professional qualification in the insurance business, he has an impressive track record as a broker in a major London insurance house, seven years in Khartoum as insurance adviser to the Sudanese Government, and in Ethiopia for EIC. His enthusiasm for his work is infectious.

NICE's business has grown over the last four years at a remarkable rate. It now has a Birr 50m turnover (Birr 6.3 to $1)

Gross premium income increased from Birr 17.4m in 1992, to Birr 50.7m by the end of 1995. It is estimated that this will rise to Birr 63m by the end of 1996, and Birr 150m by the year 2000.

The underwriting result grew from 27% in 1992 to 41% in 1994 as a share of the gross premium income.

In 1992, every Birr in premium was generating 0.27 cents towards technical profit. In 1994 that had grown to yield 0.41 cents.

Gross profit rose from Birr 4.3m in 1992, to Birr 10.6m at the end of 1994, and an expected Birr 15.5m by the end of 1995.

It has not all been easy ride however. The life portfolio, for example, has been disappointing. Premiums rose from Birr 14,000 in 1991 to Birr 367,000 in 1995. "Eritreans are too poor," says Ato Zeru. "They do not have the spare change in their pocket to pay insurance premiums for themselves, and the family support structure is very strong here."

The overall loss ratio of the Corporation, though it has remained reasonable, is also especially vulnerable to claims in motor insurance, with an estimated loss ratio of 70% in 1995.

The highest and most serious claims are from bus operators. In 1995, three buses overturned, killing 52 and injuring 75. The loss ratio for buses alone approached 150% in 1995. This is because most buses are second hand, have already seen many years of service and were not built for the mountainous and rugged terrain of Eritrea. NICE has now provided breathalyser units and an ambulance bulance and driver on standby to the police in an effort to limit the damage caused by accidents.

The insurance business undertaken by NICE is an outward business only, and the actual net outlay of foreign currency for the years 1992-1994 was about Birr 13.4m, 18% of gross premium income generated during the same period. As a result of a serious fire at the Asmara Match and Paper Factory in February 1995, reinsurers sustained a loss and the net foreign currency outlay for 1995 is expected to be only 8% of the gross premium income of that year.

NICE has a monopoly, but probably not for much longer. The Government's Macroeconomic Policy is committed to economic privatisation and liberalisation. Studies are under way to assess the need for further insurance services. "We need competition," remarks Ato Zeru. "We have not penetrated the market enough, because there is no incentive for my staff to do so."

"There is probably room for another two companies, but we have to make sure that they have competent professionals running them," Ato Zeru adds. "We also have to establish a strong regulatory body to supervise the work of all insurance companies."

Ethical operation

Underlining so much of the thinking in Eritrea, is an awareness of the need for ethical operations. Ato Zeru's own commitment to a people-oriented reconstruction comes through when he talks about NICE's work. "it is shocking to realise that 50% of all our premiums come from motor insurance. And yet we only have about 21,000 vehicles in the country, and only 18,000 owners. So 55% of our business is serving an elite, not the mass of our people, 80% of whom live in the rural areas."

It comes as a surprise to hear an insurance broker talking about "serving people", but Ato Zeru has gone further. Plans are now well advanced to introduce agriculture and livestock insurance for small farmers. Donors and the EU have been approached to assist; to underwrite NICE losses in the first three years, and keep premiums as low as possible. Mentioning the Grameen Bank in glowing terms, he is enthusiastic about the potential for helping the agricultural sector in this way.

"We have had so many years of drought that the farmers now keep their seed to feed their families rather than risk sowing and losing it when the rains don't come.

"If we can remove this risk from them, we have a chance of getting a harvest when there probably would not have been, and if the harvest fails, then farmers will still be able to feed their families."

Plans include piloting the idea in one or two provinces first, probably using agricultural extension workers to encourage farmers to pay very small premiums.

Given the importance of agriculture and livestock production for Eritrea, NICE may be a strong force in supporting this sector.

The per capita expenditure on insurance and the premium income as a share of gross domestic product in Eritrea is among the smallest in Sub-Saharan Africa.

However, the prospect of Eritrean economic development will eventually revive the increase in the insurance business, and the industry is expected to grow faster than the overall economic growth of Eritrea. It will certainly interest investors, especially in the capable hands of Ato Zeru, and his Board.


Piracy Returns

The collapse of the Somali state into a bitter turf war between rival clans and factions has had a bizarre spin-off. Piracy or at least attempts at piracy, has returned to the coast of Somalia.

It is affecting trade. African ports, particularly those with heavy trade that passes along the Somali coast, have been warned of possible attacks after several vessels recently came under mortar fire.

The latest Lloyd's shipping bulletin, published in London, reports that pirates fired a mortar on a British racing yachts. Longo Barda, mid last year in an attempt to seize the vessel, but fled when container ship and a Canadian naval vessel came to the rescue.

A Bahamas general cargo carrier, Nourberg Mofarry, also came under heavy fire from a machine-gun totting pirate vessel near Djibouti late last year.

In another incident, port workers in Mogadishu were implicated in an attack on the Tropical Sun, a Liberian registered cargo ship, when the vessel was in dock last month.

The ship, owned by Dole Fresh Fruits International, was believed to have had a cargo of bananas from Mogadishu destined for Europe.

Captain John Martin, the Superintendent of merchant shipping in Kenya, says that several ships plying the Somali ports of Kismayu and Mogadishu have had to seek armed escorts and employ Somali speaking crews as precautionary measures.

The area been declared a danger zone by the International Chamber of Commerce Regional Piracy Centre in Kuala Lumpur, which monitors piracy worldwide, The International Maritime Organisation has since alerted member states of the danger.

The Chairman of the Kenya Ship Agents Association, Mr. Charles Halwenge, however, says no formal complaints of the piracy off the Somali coasts have been reported by its members. "This could perhaps be due to the fact that the principals (ship owners) would not want to highlight such incidents should their ships be involved," he says.

Mr Halwenge says the Association is more concerned with events within Kenyan territorial waters, especially at the Port of Mombassa. Another shipping source described the Somali attacks on vessels as "haphazard" and not as organized as piracy experienced in other parts of the world.

The route along the Somali coasts is, however, vital to trade between Europe, the Middle East and several African ports in East and Southern Africa, and shippers say the Somali incidents have reduced the number of vessels sailing to Somali ports from Mombasa, and elsewhere.

Somali warlords provide armed escorts to ships which enter their area of control, but the situation is complicated by the fact that Magadishu, the Somali capital, is currently run by different fractions, each controlling the ports in its own territory.

Ships docking at the Kenyan Port of Mombasa from Somalia many discharge fish, electronics, machinery and scrap metal. Somalia's main imports from Kenya include detergents, coffee and tea.

In a typical case of piracy elsewhere in the world, a group of armed men in a faster and smaller craft, ambushed the crew of a bulk carrier passing through a narrow passage, by throwing on a line with a hook and climbing over the side of the ship in the small hours of the night. The pirates forced the ship's captain to open the safe, emptied it of cash, and valuables, and then fled.

So far, Somalia's pirates seem far less sophisticated, but this can be little solace for captain and crew when mortars are involved.
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Title Annotation:insurance industry in Eritrea
Author:Street, Jennie
Publication:African Business
Date:Apr 1, 1996
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