New Legal Framework for Insurance

The Government has approved the new Legal Framework for Insurance, a law that repeals the framework previously established by Decree-Law No. 1/2010, of December 31, and revises the legal framework governing the conditions for access to and conduct of insurance business in the Republic of Mozambique, including reinsurance and microinsurance, as well as insurance brokerage.

The Framework also defines the conditions for the establishment abroad of any form of representation by insurance and reinsurance companies headquartered in the Republic of Mozambique; establishes the procedures for the conduct of insurance business by insurance and reinsurance companies; addresses the recovery, reorganization, and liquidation of insurance and reinsurance companies; and also adapts the penalty regime applicable to insurers and reinsurers, as well as to insurance brokerage, representing a modernization and strengthening of the Legal Framework for Insurance in Mozambique.

1. Main Changes

i. Expansion of the Scope of the Legal Framework for Insurance

Decree-Law No. 1/2010, of December 31, was limited to regulating only access to and the conduct of insurance, reinsurance, microinsurance, insurance brokerage, and insurance contracts, whereas the new regime now expressly covers:

• Contingencies arising from the conduct of business;

• The rehabilitation of insurers and reinsurers;

• Financial restructuring;

• Liquidation; and

• The sanctions regime.

This amendment reflects the shift from a model focused primarily on licensing and inspection to a model of comprehensive prudential supervision, which accompanies the entity from its incorporation through to its eventual rehabilitation or liquidation. Similarly, it demonstrates the legislature’s awareness of the need to regulate the specific characteristics of the insurance sector as distinct from commercial companies in general.

ii.Supervisory Authority

The new regime strengthens the supervisory authority formerly known as ISSM—which previously performed only supervisory and inspection functions—and now designated as ASFPM, granting it explicit powers to:

• Grant licenses;

• Supervise;

• Regulate;

• Inspect;

• Imposing sanctions; and

• To oversee prudential matters relating to pension funds.

The ASFPM thus assumes a broader and more technically central role in the oversight of the insurance market. The law further establishes that the primary objective of supervision is the protection of policyholders, insured persons, and beneficiaries, and that this should also include injured third parties.

iii. Transfer of Authorization Authority

Under the previous regime, the authority to authorize the establishment of insurance and reinsurance companies rested with the Minister responsible for finance, subject to an opinion from the ISSM; under the current regime, however, this authority is assigned directly to the ASFPM in order to make the process more technical, reduce administrative or political interference, concentrate decision-making within the specialized authority, and strengthen the functional independence of supervision.

This institutional change is one of the most significant, as it aims to achieve technical decentralization and strengthen the supervisor’s autonomy.

iv. Significant Increase in Minimum Share Capital

With a view to strengthening insurers’ financial capacity, coverage of assumed liabilities, solvency, the ability to pay claims, and market stability, the new regime establishes an increase of approximately three times the share capital, compared to the previous regime, in the following categories:

• One Non-Life line—Sickness/Health or Assistance—15,000,000.00 Mt (previous regime)—45,000,000.00 Mt (new regime);

• Two specified lines or other Non-Life lines – 33,000,000.00 Mt (previous regime) – 97,000,000.00 Mt (new regime);

• Life insurance – 67,000,000.00 Mt (previous regime) – 196,000,000.00 Mt (new regime);

• Joint Life and Non-Life operations – 100,000,000.00 Mt (old regime) – 295,000,000.00 Mt (new regime).

v. Strengthening of corporate governance requirements

The new regime introduces more robust mechanisms for authorization, including:

• The technical, economic, and financial feasibility of the project;

• The availability of adequate human, technical, and financial resources;

• Demonstration of an adequate governance system;

• A Board of Directors consisting of at least three members;

• The ability of shareholders to ensure sound and prudent management;

• The absence of obstacles to supervision arising from domestic or foreign group relationships.

These requirements reflect an alignment with modern models of risk-based prudential governance.

vi. Introduction of explicit rules to protect competition

The new regime prohibits concentrated practices aimed at securing a dominant position, practices that artificially alter normal market conditions, and discriminatory treatment in policies of the same line or type, unless objectively justified.

vii. Introduction of sovereign insurance

The legislation introduces an innovation by allowing for the creation of sovereign insurance designed to cover non-life risks of extreme magnitude resulting from abnormal events, which was not provided for under the previous regime. The establishment of such insurance is subject to government authorization, upon a proposal by the Minister of Finance.

This innovation may be relevant for risks associated with cyclones, floods, severe droughts, natural disasters, and events with major economic and social impact, and is fully aligned with the behavior of the global insurance and reinsurance markets in light of the increased risks resulting from climate change.

viii. New Treatment of Microinsurance

The legal framework now repealed regulated in detail aspects related to microinsurers, including forms of incorporation, minimum capital, lines of business, reserves, policies, and distribution of profits.

The current framework maintains microinsurance within the general scope but stipulates that the conduct of microinsurance business will be subject to specific regulations.

This approach allows for the creation of a more specialized framework tailored to the characteristics of microinsurance, particularly with regard to financial inclusion and coverage for lower-income populations.

ix. Autonomous Regime for Recovery, Restructuring, and Liquidation

The new framework establishes clearer mechanisms for intervening in insurance companies facing financial difficulties. It requires that an insurer or reinsurer have procedures in place to identify risks of financial insufficiency—defined as an entity that does not possess the financial guarantees required by law—which enables:

• Early identification of financial insufficiency;

• Adoption of recovery measures;

• Implementation of restructuring measures; and

• Possible initiation of liquidation proceedings.

The initiation of liquidation proceedings results in the revocation of the authorization, but certain operations necessary to protect creditors and ensure the orderly conclusion of the proceedings may be maintained.

x. Prohibition of fronting operations

Fronting operations are now expressly prohibited under this new regime, in order to prevent domestic insurers from acting merely as formal intermediaries, transferring virtually all risk to foreign entities without effective retention or adequate assumption of liability.

xi. Digitization of Premium Collection

The new regime includes a transitional provision requiring authorized intermediaries to adapt their systems to electronic premium collection within three months of the law’s entry into force.

This measure may contribute to:

• Greater transparency;

• Traceability of payments;

• Reduced risk of misappropriation;

• Revenue control;

• Improved oversight; and

• Market modernization.

xii. Permitted Legal Forms

Under the previous regime, insurance and reinsurance activities were carried out by corporations and mutual companies, and micro-insurers were permitted.

With a view to simplifying the institutional framework, the new regime allows insurance and reinsurance activities to be carried out primarily by corporations and by branches of foreign insurers.

The new regime shifts the sector from a predominantly administrative and formal control model to a model of prudential supervision based on solvency, strengthened governance accountability, financial stability, and protection of insurance consumers, notably through the promotion of the role of the customer ombudsman.

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