Based on an estimated African reinsurance market premium of around $8.5bn in 2019, it is assessed that reinsurers with their corporate headquarters in Africa achieved a market share of less than 25% in 2019 (based on inwards gross premiums written from the continent), more or less stable when compared to previous years.
This is according to the Africa Insurance Pulse 2/2020 report, “Growth perspectives of African re-/insurance markets”, sponsored by Africa Re and launched by the Africa Insurance Organisation (AIO) last week.
African life reinsurance premiums
In Africa, the life reinsurance market reached an estimated size of $2bn in 2019. Based on total life insurance premiums of $46.2bn, the African life cession rate of 4.3% was significantly higher than the global average of 2.9%. Among the major African life reinsurance markets, with premiums more than doubling in US$ terms since 2015, Egypt was the fastest growing market, reflecting the steep economic growth of the country.
African non-life reinsurance premiums
Africa’s non-life reinsurance market size of approximately $6.5bn translates into a global market share of 3.4%, much higher than its non-life primary insurance market share of 0.7%. Compared to 2018, it is estimated that non-life reinsurance premiums on the continent have grown by approximately 8%. The main drivers behind this positive development are the hardening of reinsurance markets and the introduction of risk-based capital regimes in a number of countries. Although South Africa is also by far the largest non-life reinsurance market, with an estimated market share of 54%, its position is less dominant than in life reinsurance.
Non-life reinsurance outgrows insurance in two-thirds of the continent’s largest markets
In some major African non-life markets, such as Angola, Ghana and Mozambique, non-life insurance and reinsurance increased at double-digit growth rates in 2019. In 10 out of 15 of the largest non-life markets, reinsurance growth outperformed insurance growth. A large part of the difference can be explained by the hardening of global reinsurance markets and higher cession rates as a consequence of the advancement of solvency regimes.
Increasing cession rates contribute to steep reinsurance growth
In approximately 50% of all African markets, 2019 non-life reinsurance cession rates increased compared to the previous year. The many reasons include African currency devaluation against the US dollar, as many reinsurance contracts are transacted in US$ while primary insurance is transacted mainly in local currencies, and the introduction of risk-based solvency regimes in more markets on the continent.
The fact that cession rates in Africa are much higher than the global average is based on the dominance of – larger volume – proportional cessions as opposed to – smaller volume – non-proportional cessions, an often limited risk appetite or net capacity for large risks and relatively weak capitalisation of African insurers, which is limiting their net risk capacity provision.
Non-life market retention rates
Markets such as Namibia, Mauritius, Morocco and South Africa, can be characterised as relatively mature markets by African standards with high risk retention capabilities. Markets such as Ghana, Tanzania, Uganda and Zimbabwe have low insurance penetration and low risk retention rates and offer significant development potential.
The relatively large non-life reinsurance markets of Algeria and Egypt offer significant primary market development potential and are also already attractive for reinsurers from an economies-of-scale perspective.
In Africa, reinsurance growth, in particular in non-life reinsurance, has by far outpaced insurance premium growth over the last couple of years. The reasons are manifold but as a general observation, average cession rates in emerging markets are much higher than in mature markets. In addition, many regulatory authorities on the continent have introduced or are about to introduce risk-based solvency regimes, which typically leads to an increased reinsurance demand in the short- and medium-term. And last but not least, over the past couple of years, global reinsurance capital was often relatively cheap for African cedants, at least cheaper than the cost of raising equity.