Why Tanzania’s shift to new solvency measure is a game changer for insurers

The risk-based capital (RBC) adequacy model, replaces the previous system, which simply required insurers to ensure that admitted total assets exceeded total liabilities by 20 percent of net written premiums or by the minimum amount specified for the year under the 2009 insurance regulations for non-life insurance.

The adoption of the RBC approach marks a significant step towards aligning Tanzania’s insurance industry with international standards.

It brings much-needed comparability with other African and global markets, where previously each country employed its own solvency framework, creating challenges of transparency, consistency, and competitiveness.

Under the new system, insurers must maintain capital that reflects the risks they take on, with the capital adequacy ratio (CAR) required to be at least 100 percent at all times.

The model distinguishes between available capital—comprising paid-up shares, premiums, retained earnings, and approved reserves—and required capital, which is determined by TIRA based on the company’s risk profile.

Available capital is divided into two tiers, with Tier 1 representing the highest-quality funds such as ordinary shares and retained earnings, and Tier 2 including supplementary capital like preference shares and certain reserves. Importantly, Tier 1 must always exceed Tier 2 to ensure that insurers hold a strong equity base capable of absorbing potential losses.

While this shift represents progress, it also introduces new pressures for some insurers and reinsurers. The amount of regulatory capital required will now be dictated by specific risk factors—market, credit, insurance, and operational risks—rather than a one-size-fits-all formula.

This creates a more accurate and fair measure of financial strength but also means that insurers with highly leveraged balance sheets may face difficulties in meeting the new requirements.

Since equity financing carries more weight under the RBC model than debt, companies will need to prioritise strengthening their equity base if they are to remain compliant.

The new regime also comes with stricter oversight. Insurers must notify TIRA within 30 days if they breach the capital requirements, and failure to do so will invite sanctions under the Insurance Act.

The closer a firm’s CAR falls to the 100 percent threshold, the more intense the regulatory scrutiny and corrective action will be, with severe penalties awaiting those that drop below this minimum.

This reform will inevitably reshape the strategies of Tanzanian insurers. Firms may have to scale down or transfer some lines of business that consume excessive capital, raise new funds through share issues, or restructure their portfolios towards lower-risk areas in order to strengthen their solvency position.

Those that adapt quickly will be well-placed to compete, not only domestically but also across the region and globally.

The move to risk-based capital is, therefore, more than a technical adjustment but also a catalyst for building a more resilient and competitive insurance market. By aligning capital requirements with risk exposure, TIRA has laid the groundwork for greater financial stability, improved policyholder protection, and enhanced confidence in the sector.

The challenge now lies with insurers to embrace the change and position themselves for sustainable growth under the more demanding but ultimately fairer regulatory environment.

Fadhili Bryceson is a registered accountant and insurance professional with 10 years’ experience in financial institutions and is currently working as an accountant at Assemble Insurance Company Ltd.