Mandatory Reinsurance Cessions in Tanzania: Relevancy and Unprecedented Development of Legal Framework

It is alleged that, immediately after independence, inadequate local reinsurance capacity has had an effect of fuelling the drains of foreign currency through payment of reinsurance premiums to foreign firms. In solving this problem, the government of Tanzania banned operations of foreign reinsurance brokers in 1974. However, this move was considered unsuitable, hence did not last longer. As such, in 1996, the insurance business was liberalised from state monopoly to allow participation of private insurance and reinsurance companies. As a result, the Tanzania National Reinsurance Corporation (Establishment) Order, 2001 was issued, which, among other things, established the Tanzania Reinsurance Corporation (TAN-RE), and for the first time, introduced mandatory reinsurance cessions. Nevertheless, the introduction of mandatory reinsurance cession was not well received by Tanzania insurers, for it was hotly challenged before the courts. Accordingly, the government opted to settle the matter amicably and issued an Amendment Order (GN No 396 of 2005), which provided for the gradual phasing out of mandatory reinsurance cessions come the year 2014. Unfortunately, ten years after the anticipated phasing-out, the mandatory reinsurance cessions still reign and bite the Tanzania insurers. It is thus, the objective of this paper to establish whether or not phasing out of mandatory reinsurance cessions were a legal oversight that necessitated a swift turn around by the government without taking the Tanzania insurers on board; and whether or not this unprecedented and bizarre legal journey has had an adverse impact in building local reinsurance capacity.