News Africa05 Oct 2020

Africa:Difficult market conditions erode region's attractiveness for reinsurers

| 05 Oct 2020

Competition and rising acquisition costs have led to a gradual deterioration in the performance of participants in the reinsurance market of sub-Saharan Africa, reducing the attractiveness of the region to potential new entrants, says AM Best.

In contrast, previously for many years, the reinsurance markets of sub-Saharan Africa, though small by global standards, provided global reinsurers with an opportunity for diversification and profitable revenue growth.

In a new Best's Market Segment Report, "Tough Operating Conditions Present Challenges for Sub-Saharan Reinsurance Markets," AM Best notes that the operating environments across sub-Saharan Africa remain difficult for domestic and international companies, more recently exacerbated by the COVID-19 pandemic, albeit with varying severity.

Many of the region’s markets face double-digit inflation and local currency depreciation; for some countries, government instability and corruption have contributed to social unrest and political uncertainty.

Potential

Despite these challenges, there remains significant growth potential for the (re)insurance sectors due to the region’s substantial natural resources, a young and growing population and the gradual development of regulatory regimes.

The report also notes that regional capacity is limited. The capital base of sub-Saharan African reinsurers is typically too small to meet the needs fully of the local primary markets, where construction and energy risks often require significant capacity.

Established and internationally experienced companies are able to contribute the know-how needed to manage complex risks and offer greater capacity than local market participants. With a few notable exceptions, local and regional reinsurers act as followers, subscribing to the terms and conditions arranged by the lead reinsurer.


 

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