Africa’s reinsurance markets are expected to benefit from strong underlying growth, driven by an expansion of its primary markets with insurance premiums of US$64 billion, according to the latest Africa Reinsurance Pulse. The study, based on in-depth interviews with 22 reinsurers and brokers operating in the region, provides a unique overview of the trends and drivers of Africa’s $8.3 billion reinsurance market.
The report noted that the fundamental strengths of the African reinsurance markets remain intact, despite the recent economic slump. New, larger and more complex risks have arisen, requiring insurance protection while the broader African middle class is eager to protect its assets and make provisions for the future. Abundant resources, a juvenile and growing population and the need for investments in infrastructure, energy, health and educational facilities drive the demand for insurance protection and reinsurance cessions.
However, access to local expertise, reliable data and statistics are regarded as weaknesses of the market, the report said. In addition, frequent foreign exchange trading restrictions and the vulnerability of fragmented and relatively small markets to sudden swings in export demand, commodity prices and exchange rates fluctuations may result in unwanted volatility. Also, political instability is still the biggest threat to the region’s insurance and reinsurance markets and strongly affects growth expectations.
Furthermore, protectionism in the form of priority or compulsory cessions is feared will harm the domestic markets, although it may also limit the impact from global excess capacity.
Challenges & Opportunities
The majority of the interviewees felt that current reinsurance rates were below the average of the last three years. Risks are still far more adequately priced, but competition is mounting as regional and international players fight for market share. However, on a global scale, markets are still perceived as profitable due to stable loss ratios and the region’s limited exposure to natural catastrophes.
Profitability is coming under pressure as new capacity enters the market and international reinsurers deploy additional capacity to established markets or to new ones where they intend to expand. Supported by regulatory provisions, domestic capacity is expected to outgrow international capacity in the near term.
Overall, exposure is expected to outpace the region’s GDP as values and risks increase in scope, scale and complexity. However, since rates may decline, 57% of executives polled expect premiums to grow slower than GDP, implying that reinsurers will take on risk at a lower price.
The advent of new technologies has been a key driver for insurance penetration. The fast and vast dispersion of mobile phones greatly facilitated the distribution of policies to the low-income population that still lives in scattered and remote rural areas. Further, microinsurance has greatly contributed to raising the awareness for insurance products.
The Africa Reinsurance Pulse is an annual survey, conducted by Dr. Schanz, Alms & Company, was facilitated by Africa Re, the African Insurance Organisation (AIO), Swiss Re, the Casablanca Finance City (CFC) and the Qatar Financial Centre (QFC).