💹 Breathing Life Into Life Insurance

PLUS: EIH, The Next Investor?

Welcome to the 93rd edition of ፍራንክ Digest!

Your weekly brief on all things Finance and Investing. Quick, enjoyable reads for busy professionals in 5 minutes or less.

Here’s what’s coming your way:

  • đŸ§© Missing Piece In Financial Planning

  • 👣 Trying To Mimic a $1.7T Giant

  • đŸ–Œïž Big Picture

Thanks for reading!

Life Insurance Meets Reality

season 2 GIF

Economy

We’re always poking around for the blind spots in Ethiopia’s financial sector. Banking usually steals the spotlight with interest rates, digital loans, FX fiasco, the whole drama. While insurance quietly sits in the corner.

Maybe that’s why we don’t see enough innovation there. Which is a shame, because insurance has far more potential than we give it credit for.

Our take on Life Insurance in Premiums To Payouts and a recent liberalization on interest rates by NBE got us thinking of Universal Life Insurance.

Before we get into it, let’s zoom out. Life insurance really comes in three flavors: Term, Permanent (also known as whole life) and Universal.

Term life insurance is the simplest and cheapest option, providing protection for a fixed period such as 10 or 20 years, and paying benefits only if death occurs during that time. Permanent (whole) life insurance provides lifelong cover but with fixed premiums and guaranteed benefits, making it more stable and predictable, though more expensive.

Universal life insurance is a form of permanent life insurance that combines long-term protection with a savings element and a degree of flexibility in premium payments.

In theory, it offers lifetime cover as long as the policyholder pays enough premiums. Behind the scenes, your premium is split into two buckets.:

  • One portion covers the cost of insurance, which includes mortality risk, administration and operating expenses required to keep the policy active. This cost increases as the policyholder ages and as medical and operational costs rise, a reality that is particularly pronounced in Ethiopia due to persistent inflation.

  • The second portion of the premium is allocated to a savings account within the policy, commonly referred to as the cash value. This amount is invested by the insurer, typically in government securities such as Treasury bills and earns interest that is periodically declared by the insurer.

The real charm of universal life insurance is premium flexibility. Over time, the accumulated cash value can help offset increasing insurance premiums. During periods of higher disposable income, policyholders may pay more and build up savings, while in leaner periods they may rely on accumulated cash value to keep the policy in force.

This is particularly relevant for self-employed individuals, traders and small business owners whose incomes fluctuate throughout the year.

On the flip side, you can also use the excess cash by either withdrawing it or using it as collateral for what’s called a “policy loan”. In a country where pension coverage is limited and voluntary long-term savings remain underdeveloped, such policies can play an important role in personal financial planning.

These loans are typically offered at lower interest rates than those available from microfinance institutions and do not require collateral or credit assessments. Of course, any unpaid loan reduces the amount your family eventually receives
so it’s helpful money, not free money.

In Ethiopia, universal life insurance in its pure form is still not available but that could change. The local insurance market has traditionally focused on term life, permanent life and group life products. However, several insurers now offer policies with flexible premium arrangements and savings-linked components that resemble universal life structures. Look into Endowment Life Insurance for the time being.

Still, inflation remains the elephant in the room. It affects both the real value of payouts when the policyholder’s ሜኝቔ occurs and the purchasing power of the savings portion over time. This is a risk across all long-term financial products, not just insurance, but it’s one that can’t be ignored.

When compared with other forms of life insurance, universal life occupies a middle ground. Term life insurance remains the most affordable and widely used option in Ethiopia, particularly for group schemes. Permanent life insurance, while more expensive, offers fixed premiums and guaranteed benefits, making it attractive to conservative savers.

 Big Picture

Recent developments in Ethiopia’s financial sector are gradually creating space for more sophisticated insurance products. Strengthened oversight by the National Bank of Ethiopia, Life Insurance is no exception to change in an increased competition environment among private insurers with improved investments and digital payment systems.

As financial literacy improves and people start thinking beyond short-term survival toward long-term planning, universal life insurance could move from “interesting idea” to everyday conversation.

ፍራንክ Picks 

SWF: When a Country Is Your Investor

Investing

You know what stress is? Trying to do a last minute proofread of your investor report slide deck to the biggest sovereign wealth fund on earth


That’s right, when a country has invested in you, the pressure turns up a notch. Norway, which is a lovely country in the north of Europe, is the undefeated king of SWFs a.k.a sovereign wealth funds, if you hadn’t caught that already

It sounds so unassuming, after all, there are other greater powers who rule the world, the US, Germany, Japan, China
but it's Norway that gets the nod. 

For context, if you google Norway, you’ll stumble upon some interesting facts such as:

  • It invented the cheese slicer in 1925

  • Introduced salmon sushi to Japan in the 80s

  • Supplies London with X-mas trees during the holidays 

  • Hosts the annual Nobel Peace Prize in Oslo

  • And it’s often cited for being one of the happiest countries in the world
and for good reason too.

All in all, not a bad report card for anyone trying to rank Norway on ‘the cool wall’ (Jeremy Clarkson voice đŸ—Łïž).

Norway realized that in the 1980s, it was accumulating surplus income from its oil business (What a nice problem to have btw
)

Thus, it took the wise approach of setting up a dedicated fund, enabling ‘the government room for maneuver in fiscal policy should oil prices drop or the mainland economy contract’. 

And then voila! The Norwegian Government Pension Global Fund or as the locals call it Statens pensjonsfond utland was born. 

Today it owns shares in over 7200 foreign companies and manages over $1.7T, easily the largest single investor in the world and sitting comfortably on top of the list of other countries Sovereign Wealth Funds. 

Now, SWFs are not new, and Ethiopia is seen trying to dabble in it with the creation of the Ethiopian Investment Holdings (EIH) circa 2021.

Essentially, as a state-owned investment fund comprised of money generated by the government,  an SWF exists to deploy capital that is deemed a ‘surplus’ in other words ‘ቔርፍ’. Most governments run a budget deficit, they spend more than they earn but they find a clever trick to bridge the ‘deficit’

 A SWF is not necessarily an investment vehicle that is at the service of the host economy, it acts as a public investment institution, leveraging economic resources for monetary gains. In general, a SWF can be have a positive impact on citizens livelihood especially on an upturn where profit form different investments can alleviate the tax burden on its citizens as the government is bridging

EIH is trying to leverage this model moving forward.

It grouped together all of its disjointed State Owned Enterprises (SOEs), the ELPAs, Ethio Teles, and so on then gave them direction and purpose while aligning national interest. As part of the revolution, a new face emerged, ready to lead the pack.

EIH has a long way to go to be a noteworthy mention in the group of sovereign wealth funds, and honestly, it might not even care to be mention in the same breath as Norway’s Juggernaut ($150B is cute to Norway, the cheese slicer inventor). But Ethiopia sees EIH more than just a pet project, it’s likely to be the weapon of preference when the economic climate forecast is cloudy with a chance of precipitation đŸŒ§ïž.

Yet the $150B question remains: when you have highly indebted institutions with low access to foreign currency and capital coupled with an opaque investment policy, what is the strategy for success?

Big Picture

Welcome to the world of sovereign wealth funds, where Norway leads the way and Ethiopia leads the dream.

EIH is an infant amongst accomplished adults: building a sovereign wealth fund requires time and strategic planning. But if successful, it can be a valuable weapon to Ethiopia’s ambition of accelerating its global footprint.

Yet a realistic path to success needs to be drawn. Sovereign wealth funds are powerful instruments but they are complex in nature and require a robust economy backing them.

Ethiopia still lags but the potential ahead gives hope. With the right policy and investment framework, EIH could potentially brag about its future holding in Nvidia and even make a slight dig that its investment bought CEO Jensen Huang’s new leather jacket đŸ˜‰

Thanks for sticking with us, ፍራንክ family! Keep those wallets smart and your inbox open - we’ll be sliding in next week!

Reply

or to participate.