Despite its limited size, with only two companies currently in operation – Assurance AMERGA and GXA Insurance – the Djiboutian insurance sector has enjoyed relatively steady growth, particularly over the past decade and a half. A number of reforms in 2000, followed by the more recent rise in capital investment and foreign investment in Djibouti, has brought new non-life opportunities, and while much of the larger infrastructure projects remain beyond the reach of the local providers, profits from other segments, such as automotive insurance, remain healthy due principally to the legal scheme and the limitations of corporal and death compensation in third-party motor liability insurance contracts.
Although the small size of the sector reflects the country’s population of just under 900,000 people, it has not hurt the performance of the two insurers. “The insurance market is not very big but it is very profitable. The margins are very good compared to other insurance markets in the region and beyond,” Aden Saleh Omar, sub-director for insurance at the Ministry of Economy and Finance, told OBG.
Oversight
Although the sector is managed by a dedicated insurance directorate at the Ministry of Economy and Finance, approvals for granting or revoking operating licences rest with the Council of Ministers, under the advice of the insurance directorate, according to a report by the World Trade Organisation. The insurance directorate also has the power to set pricing, though prices are currently determined by the insurers themselves.
The sector shares other traits with its fellow emerging and frontier markets, including a general lack of consumer awareness. “Local insurance firms need to work more to inform the population of the importance of insurance in terms of protection of assets and liabilities. Contrary to what many people may think regarding perception of insurance pricing, house insurance is very affordable. For example, you can insure a house and its contents for around $120 per year,” Nasir Abdo Abdallah, technical director at GXA Insurance, told OBG.
Market Structure
Before the 1999/2000 insurance sector reform was implemented there were no Djiboutian-registered insurance companies. Since the country’s independence, coverage had been provided solely through the local agencies of foreign insurers. “Before 1999 there was no insurance regulation or supervision in Djibouti. This allowed agencies and subsidiaries of foreign insurance companies to have their assets and accounting abroad, so the insurance sector had no impact on national economic development and liabilities were not guaranteed in case of liquidation,” Saleh Omar told OBG. “This situation completely changed with the adoption of a new legal framework in line with international standards.”
The introduction of the new law required all insurance companies operating in Djibouti to have their assets, accounting and offices based in Djibouti. Assurance AMERGA and GXA Insurance were subsequently established in 2001. By 2014 GXA accounted for DJF$1.947bn ($10.9m) of the country’s premiums, while AMERGA had the remaining DJF$1.319bn ($7.4m). The move to create a domestic insurance sector had the advantage of increasing the volume of domestic institutional investment. Some 50.2% of financial placements by insurers in 2014 were invested in term deposits, and 41.8% in real estate.
Reinsurance
Because of the limited size of the market and the lack of a domestic reinsurer, local insurance companies deal directly with international reinsurers. However, in order to stem the rising value of reinsurance premiums exiting the country – which amounted to DJF976.1m ($5.5m) in 2014, up from DJF724.1m ($4.1m) in 2010 – insurance authorities have issued legislation to help channel reinsurance money into the region in order to strengthen the regional economic integration of the COMESA financial sector. In 2014 a decree was passed establishing that 30% of all reinsurance and 15% of fronting agreements by Djiboutian insurance firms had to be conducted with regional reinsurance provider PTA Reinsurance Company.
The firm operates in COMESA countries, and is owned by the governments of Djibouti, Rwanda, Sudan, Mauritius, Kenya and Zambia, among others. The move also guarantees that some reinsurance premiums return to the country. The government has a 4.25% stake in PTA, while AMERGA and GXA have participations of 0.89% and 0.63%, respectively.
Potential Growth
Despite the large amount of cargo passing through Djibouti and the role that logistics and transportation services play in the economy, insurance of goods transitting through the country is not mandatory. Although the 1999/2000 insurance law established that the coverage of merchandise going through Djibouti must be handled by Djiboutian insurance companies, this is not always the case, due to a lack of enforcement. “There are two compulsory insurance schemes in Djibouti: motor and the cargo for imports, which must be covered by the local insurance companies. The compulsory cargo law only affects goods destined for Djibouti. While motor insurance is fully implemented by traffic police officers, cargo insurance is not well implemented by Customs, which is in charge of verifying this when merchandise enters the country. Cargo insurance recorded a 16% drop between 2014 and 2015,” Saleh Omar told OBG.
Assurance AMERGA and GXA are looking to increase opportunities from the jump in capital investment Djibouti has seen in recent years. Currently, the modest capacity of the local insurers combined with the large size of the infrastructure projects means it can be difficult for the two firms to participate. “Most infrastructure projects come with their own insurance. The sector is lobbying for us to get some of those deals as local intermediaries, as the law states that for coverage in Djibouti, all insurance has to go through a Djiboutian provider,” Daher Warsama, finance and accounting manager at Assurance AMERGA, told OBG.
Auto
Given the small size of Djibouti’s population, while mandatory auto coverage provides a reliable stream of premium revenue, the country has also gained from cross-border road coverage. As a member of COMESA, Djibouti benefits from the Yellow Card insurance scheme, for example.
Based on the EU’s Green Card regime, the Yellow Card system is a third-party motor vehicle insurance scheme covering health and material costs for drivers when they travel through COMESA member countries. The establishment of the Yellow Card scheme brought many advantages, such as the elimination of the need to insure drivers and merchandise for each country that transporters were travelling through. In 2014 Djibouti accounted for 4.3% of the DJF1.4bn ($7.8m) in insurance premiums under the Yellow Card system. The capacity for increasing this is in part restrained by the fact that many of the transport vehicles crossing Djibouti’s borders – more than 320,000 in 2014, a near-10% year-on-year increase – are Ethiopian, and as a result are covered by Yellow Card premiums registered in that country.
Ethiopia accounted for 15.2% of all Yellow Card premiums in 2014, third in the COMESA region after Kenya and Zimbabwe, according to the Djibouti Insurance Directorate. Djibouti’s insurance sector has been expanding gradually since the 2000 regulatory reform was put in place. The substantial role of transport activities and related infrastructure developments that are taking place has the potential to help the sector increase its participation in the economy. However, for the current economic development to fully impact the sector in a positive manner, better enforcement of existing sector rules is needed.
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