Court bid to stop billions flowing to SA

The finance minister says non-compliance by insurance companies will lead to irrecoverable outflows of money from the country.

30 August 2018 | Justice

Finance minister Calle Schlettwein has dragged seven insurance companies and their CEOs to court for defying sections of the Namibia National Reinsurance (NamibRe) Act, which he says will lead to irrecoverable outflows totalling N$1 billion a year for an indefinite period.

The court application follows local insurance firms sending 20% of their monthly income to reinsurance companies in South Africa, instead of paying it over to NamibRe.

In his application against Hollard Insurance, Hollard Life, Sanlam, Santam, Trustco Insurance, Trustco Life, Outsurance and Old Mutual Assurance Company, Schlettwein is challenging their decision not to pay compulsory cession fees over to NamibRe.

Schlettwein, through government attorneys, argued in his High Court papers that the insurance companies were not paying the local cession fees, as stipulated in the amended NamibRe Act.

The cession fees were initially set at 20%, but were reduced to 12.5% after consultations with industry stakeholders.

The fees are a portion of an insurance company's monthly income, which is paid to a reinsurer, which in the case of local insurers should be NamibRe.

The companies, however, challenged this decision, which led to NamibRe incurring costs to rope in specialists to strengthen its in-house expertise, while also hiring additional staff.

Schlettwein said the local insurance industry had been given ample time to prepare itself, in addition to the reduction in the cession fees percentage. According to him, the resistance was unlawful in terms of the law.

“They have broken ranks with other major insurers which are not flouting the law, pending the determination of the (court) challenge and review. The unlawful conduct of the respondents, intended to protect private profit, cannot be allowed to prevail over this period at the (cost of the) achievement of the objectives of the Act,” Schlettwein said.

According to him, capital outflows from Namibia in respect of reinsurance are set to continue, irrecoverably, at a cost of N$1 billion a year for an indefinite period.

“If the respondents are permitted to continue in their stance, there is reason to apprehend that those who are currently complying will cease to do so,” said Schlettwein.

The reluctance to pay cession fees locally also meant that NamibRe's creditworthiness was at risk, he said.

“The non-implementation of the cession (fees), owing to the unlawful conduct of the respondents, will likely result in ratings agencies downgrading NamibRe's credit rating. This will negatively impact on NamibRe; it will result in a loss of business,” Schlettwein said, adding this was detrimental to the economy.

NamibRe, in its supporting affidavit filed by Sisa Namandje & Co, said it depended on the cession fees for the sustaining of its operations and to continue to achieve the objectives of the Act

The insurance companies and their CEOs, represented by Francois Erasmus and Partners, said they were not to blame for the delayed growth of NamibRe's balance sheet or the delays in the finalisation of pending court proceedings challenging the cession fees.

“The applicants do not make out any case why NamibRe's balance sheet could not have been adequately capitalised by government itself as the sole shareholder, by its listing or by the issuing of debts through conventional bank funding or through a listed note programme,” Erasmus argued.

He further argued another year would not make any enduring difference, either to Namibia or NamibRe, or to the NamibRe Act and its enforcement.

“The respondents were entitled to pre-emptively lodge their challenges, and a court has no discretion, with respect, in the circumstances of this case to refuse the applicants time and opportunity to finalise their challenges,” Erasmus said.

He further argued the intended revisions to the Act were prejudicial to consumers, the economy and a sustainable insurance industry; and that the measures violated the rule of law and entrenched constitutional rights.

Arguments are set to continue today before Judge Thomas Masuku.

OGONE TLHAGE

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