African reinsurers concerned about profits but AM Best optimistic longer term

The mood among Africa’s reinsurance executives has become more bearish, as declining rates and rising claims weigh on the profitability of the African reinsurance markets, with a current premium volume of roughly $7.5bn. While Africa’s economies are still recovering from the commodity crisis of 2016, which highlighted the continent’s vulnerability to external shocks, executives are once again concerned about the current outlook in light of renewed economic and political uncertainties, according to the fourth edition of the Africa Reinsurance Pulse, which was published at the 24th African Reinsurance Forum in Tunis. However, the senior executives of Africa’s leading brokers and reinsurers interviewed also believe that the inflow of excess capacity from advanced markets into the continent has finally come to a standstill. In fact, insured values as well as premiums might benefit from the current economic growth and outgrow GDP. Meanwhile, a report from AM Best suggests insurance markets across Sub Saharan Africa provide an opportunity for diversification and an avenue for growth, therefore remaining attractive to international reinsurers taking a longer-term view. In a new AM Best Market Segment Report – Sub Saharan Africa Remains a Long-Term Opportunity for Reinsurers – the ratings agency says Sub Saharan African reinsurers rated by AM Best have experienced strong growth during the past decade, with a ten-year compound annual growth rate of gross written premium (GWP) of more than 7% (calculated in US dollars). Increases in GWP have been driven predominately by the non-life insurance segment, with life business at a nascent stage in many countries. The report states: “The ongoing development and industrialisation of the continent’s economies, together with gradual increases in insurance penetration, have contributed to the expansion of the region’s reinsurance markets for the longer term, a trend that AM Best expects will continue.” However, Andreas Bollmann and Henner Alms, authors of Africa Reinsurance Pulse, said: “The market assessment among Africa’s reinsurance executives has deteriorated after it had already been on a road to recovery. While rates, terms and conditions and profitability are low, Africa’s economic growth has improved somewhat and may translate into volume growth. “But executives fear the next crisis may be lurking around the corner as rising trade barriers and a slowdown in appetite for Africa’s commodities cloud the outlook.” Increasing GDP Overall though, 2018 was a year of recovery. Africa’s GDP increased by an estimated 3.5%, roughly in line with the prior year, but trailing slightly below the global average of 3.6% and the emerging market average of 4.8%. Insurance premiums expanded by 4.9%, ahead of GDP. According to Africa Reinsurance Pulse’s assessment, reinsurance will have benefited in line with insurance market growth, surpassing the $7.5bn mark for the first time. Fundamentally, Africa’s underlying narrative based on population growth, infrastructure needs and an expanding middle class remains intact. In addition, in 2018 key primary insurance markets like South Africa or Nigeria returned to growth. With the enforcement of risk-based capital regimes and tighter capital requirements, markets are seen to be becoming more sophisticated. However, a shortage of skilled labour has become a concern to all reinsurance executives, as experienced talent is needed to advance risk management, product development and technology. The rise of protectionism is another worry, as access to markets becomes more costly, while capacity for highly specialised risks remains a scarcity in some African markets. Africa’s low insurance penetration should increase as more insurable values come onto the market. Instead, the continent’s average insurance penetration rate has declined in the last ten years from 3.26% in 2008 to 2.98% in 2018. Although improvements may come from the expansion of Africa’s insurers and reinsurers into lines of business that are seen as growth drivers – such as infrastructure and agricultural insurance – rising trade barriers and overregulation affect access to business, increase cost and hamper innovation. Finally, rising losses from natural catastrophes and climate change steadily alter Africa’s image as a marketplace known for its low exposure to natural catastrophes.

African reinsurers concerned about profits but AM Best optimistic longer term

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