In a move that could be worth up to $500 million annually to investors, the Democratic Republic of Congo's insurance regulator is preparing to open up one of the world's last insurance monopolies.
The newly created Insurance Regulatory Authority, known by the French acronym ARCA, received interest from at least 16 companies after requesting letters of intent in June, Managing Director Eric Mboma said, declining to identify individual firms. It will seek formal applications from those firms in August and award licenses in the fourth quarter, Mboma, a former chief executive officer of Standard Bank Group Ltd.'s Congolese unit, said in an interview phoned in from Kinshasa, the capital.
Since 1967, state-owned Societe National d'Assurances, or Sonas, has been the only insurance company allowed to operate in Congo, Africa's fourth-largest country by population.
A March 2015 insurance law that provided for the liberalization of the industry came into effect 12 months later, with the delay intended to allow time for Congo to put in place the necessary structures. Still, implementation has been slow and regulation delayed. ARCA says it is now ready and competition could be a catalyst for economic growth.
"It will enable us to expand the financial ecosystem in the DRC and create the kind of environment in which investors can feel welcome because you are giving them more options," Mboma said.
Potential Boon
The new law will require insurance companies to keep 25 percent of total premiums in Congo, a potential boon for domestic financial liquidity. Still, in order for the sector to succeed, Mboma said Congo must also find new ways for insurers to deploy that money.
"We need to open the market, create the conditions, and in parallel to start opening new platforms for investors, for instance a very basic stock exchange," he said.
The central bank, which last week said it was a facing a severe liquidity crisis, will also need to create more products in which people can invest, Mboma said. Financial-asset trading in Congo is currently limited to the sale of short-term Treasury bills.
New insurance companies are keen to tap Congo's previously untouched potential.
"It's a virgin market, with a population of 70 million plus," said Zain Rawji, managing director of Congo-registered Rawsur.
"Significant Chunk"
Rawsur is owned by closely held Groupe Rawji, which began operations in the country in 1910 as a trading company and also owns Congo's biggest lender Rawbank Sarl, one of at least four domestic banks interested in setting up insurance operations, according to ARCA.
Sonas declares about $80 million in premiums a year, but the size of a liberalized insurance market is estimated at $500 million, according to Mboma.
"If we act as planned we should be able to capture at least a significant chunk of that potential, around 60 percent, in five years," he said.
Rawsur, which recently signed a draft agreement with an international re-insurer, agrees with ARCA's forecast, but says insurers, brokers, the regulator and the government will all have to play their roles to ensure the industry succeeds.
"It's a new regulator in a country that has had a monopoly for a very long time, there will be teething problems," Rawji said.
For example, ARCA may need to be flexible on the retention in country of 25 percent of the risk on certain large premiums, while investment options for that capital are limited, according to Rawsur.
"To expand and deepen capital markets will not happen overnight," Rawji said. "It's a five-year process from the day there is a real want."