American Property Casualty Insurance Association, American Council of Life Insurers Issue Joint Public Comment on Office of Trade Representative Notice

WASHINGTON, June 30 -- The American Property Casualty Insurance Association, Chicago, Illinois, and the American Council of Life Insurers have issued a joint public comment on the Office of U.S. Trade Representative's notice entitled "Annual Review of Country Eligibility for Benefits Under the African Growth and Opportunity Act". The comment was written on June 24, 2020, and posted on June 25, 2020:

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The American Property Casualty Insurance Association (APCIA) and the American Council of Life Insurers (ACLI) appreciate the opportunity to share our views with the Office of the U.S. Trade Representative (USTR) on the eligibility of countries to receive the benefits of the African Growth and Opportunity Act (AGOA).

The AGOA eligibility criteria requires that the country has established or is making continual progress toward establishing:

1. A market-based economy

2. the rule of law

3. political pluralism

4. the right to due process

5. the elimination of barriers to U.S. trade and investment

6. economic policies to reduce poverty

7. a system to combat corruption and bribery

8. protection of internationally recognized worker rights

Regrettably, it is clear that a number of countries that currently receive AGOA benefits fail to meet the requirement that they eliminate or are making continual progress toward eliminating barriers to U.S. trade and investment in our sector. U.S. insurers and reinsurers hope that U.S. trade officials can engage with the governments of those countries to ensure that they come into compliance with the AGOA eligibility requirements and are able to continue to enjoy the benefits of AGOA as a result. One opportunity to do so would be through impending bilateral international trade negotiations with the government of Kenya, through which we expect that Kenya's barriers to U.S. insurers and reinsurers will be removed.

Listed below are the most significant insurance and reinsurance barriers in otherwise AGOA-eligible countries in which the government has not made continual progress toward eliminating barriers to U.S. trade and investment.

Ethiopia: Ethiopia prohibits foreign investment in insurance and reinsurance companies. Furthermore, Ethiopia maintains significant reinsurance restrictions. The Manner and Criteria of Transacting Reinsurance Directive No SIB/44/2016 that came into force on 1 August 2016 imposes mandatory cession requirements for each reinsurance policy in Ethiopia. A minimum 25% of all treaty cessions and 5% of each reinsurance policy must be ceded to a local reinsurer. Additionally, the local reinsurer has the right of first refusal for all facultative placements.

Kenya: A minimum of one-third of the equity of an insurance company is required to be held by Kenyans or citizens of East African Community countries. Furthermore, local insurers are legally bound to offer state-owned Kenya Re 20% of all their outward reinsurance treaties. Kenya generally prohibits difference-in-conditions and difference-in-limits (DIC/DIL) coverage, though regulatory approval may be sought.

Nigeria: Nigeria limits foreign investment in insurance and reinsurance companies to 40% of shares. Nigeria also restricts reinsurance access, as guidelines state that no (re)insurance risk in the Nigerian oil and gas sector may be placed overseas without written approval of the regulator. Local capacity, which is the aggregate capacity (including treaty reinsurance) of all locally registered reinsurers must be fully exhausted. Furthermore, in addition to a 5% mandatory cession to Africa Re, 5% of treaty programs, excluding life and aviation, of member companies of the West African Insurance Companies Association must be placed with WAICA Re.

Tanzania: Local insurers must give local reinsurers a mandatory preferential offer before seeking reinsurance in global markets. Tanzania also requires mandatory cessions to state-owned Tan Re (20%), including on the underlying policies, Africa Re (5%), and Zep Re (10%). For each overseas facultative risk approved by the supervisory authority TIRA, the insurer must pay a levy of 3% of the applicable gross premium (subject to a minimum of USD $200). Additionally, a payment of 20% of any fronting fee or reinsurance commission in excess of 12% must be paid.

Expanding U.S. insurance and reinsurance trade and investment access in developing markets not only benefits U.S. industry and exporters, it is a crucial aid to the stability and economic development of the foreign markets in which they wish to offer their services. Insurance facilitates recovery by individuals, families, employers, and communities, promoting economic stability across the society. It also helps prevent losses from occurring in the first place through risk-based pricing and mitigation strategies. Insurers are leading investors in infrastructure, including sustainable infrastructure, as well.

The example of Kenya is instructive. Real GDP growth in Kenya has been stable since 2013 at around 6% annually. The country has registered improvements in political stability, falling from a high of 101.4/120 in the 2009 Fragile States Index to a 93.5/120 in 2019 (with higher scores meaningless stability). However, Kenya continues to face significant challenges, and it remains the 25th most fragile state in the world, ranking alongside Pakistan and Libya. Furthermore, while Kenya's insurance penetration rate of 2.43% is not that far below the level one would expect in a country at its stage of development, trends in its insurance penetration are very negative, and its current insurance penetration is well below its peak in 2013, when it stood at 3.44%, reflecting a drop of almost a third.

If U.S. insurers and reinsurers were permitted to operate in Kenya on a level playing field, they could have an important role in the development of Kenya and help it continue to improve its societal economic stability. As referenced above, the penetration rate in Kenya is not keeping pace with GDP growth, and poor underwriting has worsened the situation by slowing down the growth rate of gross written premiums. The domestic industry also lacks the most innovative technology that allows insurers to reach the uninsured, creating barriers to financial inclusion.

Those are major problems which are making Kenya less secure and leaving Kenyan citizens without the insurance solutions they need as Kenya's economy expands. Were Kenya's government to allow U.S. insurers and reinsurers to operate fully and freely in the Kenyan market, in line with the AGOA eligibility criteria, U.S. groups could bring their underwriting expertise, technology, and innovative insurance products to the market.

Thank you for the opportunity to express our views on the AGOA review. Please do not hesitate to contact us if we can provide any additional information or be helpful in any way.

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The American Property Casualty Insurance Association (APCIA) is the primary national trade association for home, auto, and business insurers. APCIA promotes and protects the viability of private competition for the benefit of consumers and insurers, with a legacy dating back 150 years. APCIA members represent all sizes, structures, and regions--protecting families, communities, and businesses in the U.S. and across the globe.

The American Council of Life Insurers (ACLI) advocates on behalf of 280 member companies dedicated to providing products and services that promote consumers' financial and retirement security. ACLI represents member companies in state, federal and international forums for public policy that supports the industry marketplace and the families that rely on life insurers' products for peace of mind. ACLI members represent 94 percent of industry assets in the United States.

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The notice can be viewed at: https://www.regulations.gov/document?D=USTR-2020-0020-0001

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