A move by the Rwandan central bank to have insurance companies improve their liquidity has seen a number of them put their properties on the market to free trapped cash.
Over the years, insurance companies investment portfolios had become heavily skewed towards property, exceeding the investment limit set by the central bank.
This had begun to affect their ability to meet claims forcing the National Bank of Rwanda (BNR), the regulator, to order adjustments to their investment portfolios.
“There is a limit for insurance companies’ investments in real estate, some of them had exceeded this limit, what they are doing is restructuring their assets into cash or near liquid form,” said Bonaventure Kagaba Sangano, the director of non-bank financial institutions at BNR.
Insurance companies are not supposed to exceed 30 per cent of investments in real estate or immovable properties of the insurer’s total capital, excluding those for the insurers use.
“Naturally maybe they are not supposed to invest in real estate; this is client’s money that needs to be readily available in case of insurance claims,” he said.
Much as central bank did not directly push them to sell off their property, pressing them to have sufficient capital has driven some insurance companies to hastily sell off some of their assets as a way of restructuring their assets, into cash or any other form easy to convert into cash when need arises.
A number of insurance companies have sold off their property in prime locations.
For instance Knight Frank, who are the property agents of various insurance companies, are currently selling off Altis apartments located in Kiyovu, Nyarugenge district that belong to Soras, as well another property in Nyamirambo belonging to Sonarwa.
According the insurance law and its implementing regulations on investments, insurance companies are required to invest their assets in a manner that caters for risk diversification and avoid putting investments in concentrated investment ventures.
They are also not supposed to exceed 30 per cent of aggregate investments in equity shares of other companies, and up to 20 per cent for investments in marketable debt securities.
“I can’t say that this is exactly the existing gap in the industry, but when you compute the solvency margin you find there is a problem” said Mr Sangano.
Jean Pierre Majoro, the executive secretary of the insurance association in Rwanda, said although he is not sure if it was an issue of depleted liquidity, but some insurance companies have not been responding promptly to claims from clients.
“There was an issue of garages which I handled, their claims had not been responded to for a long time, it involved more than one insurance company, there was no payment schedule, it was until we had a meeting that the issue was attended to, some have been paid, but others are not yet paid” said Mr Majoro.