Insurance market opportunities abound, even as economic growth slows

Daniel Staib, Senior Economist Economic Research and Consulting at Swiss Re, stressed: “It is not looking that bad but it is a contrast to two years ago when everyone looked at the region through rose tinted glasses. “SSA does have a number of challenges but the picture is not as bad as recent press reports would suggest.” In its Economic Headwinds in Sub Saharan Africa Outlook Report, Swiss Re said SSA faced headwinds as commodity prices remain low and capital flows out of the emerging markets. GDP growth in SSA is forecast to slow to around 3.8% in 2015 from 4.7% in 2014, but the region is still the fastest growing after emerging Asia.hideLooking at the insurance sector, non-life premium growth increased to 4.5% in 2015 so far, after having been suppressed in previous years by the increased enforcement of the cash-and-carry principle. With this principle, insurers can only issue policies and book premiums after they have received payment. Premiums in South Africa recovered in 2015, despite a weak economy and intense competition, as insurers raised rates on the basis of past claims experience. Demand for non-life insurance is likely to remain solid in SSA in 2016 and 2017, with premium growth of 4.5% to 5.0%, even though volumes are expected to stagnate or even contract in some of the oil- and commodity-exporting countries. Global and regional insurance groups continue to expand their footprint in SSA, which will enhance expertise in the region. Life premium growth in the region is estimated to have slowed to 4.2% this year from 5% in 2014, and will likely slow further to about 2.5% growth in 2016 and 2017. Growth weakened to 3.8% in South Africa in 2015 as the economic environment failed to improve and the rand was hit by capital outflows. Elsewhere in SSA (eg in Kenya and Nigeria), growth is estimated to have remained strong. However, given that South Africa accounts for around 90% of the region’s premiums, the results for SSA overall were disappointing. Mr Staib said factors such as low commodity prices and falling demand, coupled with low oil prices, were affecting certain economies. In Nigeria and Angola, for example, he said governments would likely have to cut infrastructure spending because most of the revenue came from oil. Investment by oil and gas majors into new areas would also likely be impacted. There remain bottlenecks in terms of development because of a lack of the necessary infrastructure, such as a dearth of power, while other risks include an escalation in terrorism in certain areas. Mr Staib also warned against emerging market contagion, which runs the risk of limiting government options in terms of funding future projects. There is also a continuing risk that investors consider Africa as a whole and do not look closely enough at individual markets before pulling away. Speaking to Commercial Risk Africa, he said: “Obviously China is a big factor and I think there is sensitivity to a negative impact in terms of exports to China. But the US and Europe are very important markets across SSA and we should see some positive news coming from those regions.” Talking about Nigeria in particular, Mr Staib said the new government had an opportunity to make significant changes and to change investor perception around the difficulty of doing business in the country, particularly around the risks of corruption. One major hurdle remains across much of the continent—the lack of data. Mr Staib said it makes it hard for businesses to operate but also for investors to have confidence when there are no hard and fast facts to base decisions on. The need for good regulation was another key factor, he believed, for insurance market growth. “You need to have good regulation and a level playing field,” he stressed. Overall, he said, the room for growth remained enormous as most African countries have such low levels of insurance market penetration. While such opportunities exist, he remained confident SSA insurance markets would continue to grow.

Insurance market opportunities abound, even as economic growth slows

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