Into Africa: how risk managers can use global programmes as part of their strategy in this fast-changing area

There has been an uptick in protectionism in the insurance markets of many African countries, with regulators imposing measures such as compulsory domestic cessions to state reinsurers, the introduction of minimum net premium retention levels, market capacity sharing and higher capital requirements for reinsurance cessions overseas. Erich Bentz, network partner relationship manager for EMEA and regional director of global programmes at XL Catlin in Vienna, explains how global programme structures can help risk managers transfer their African exposures in a consistent manner, and how brokers and insurers can offer risk managers insights as they expand in this developing region.

Q. What are the regulatory trends in the African insurance and reinsurance market that are affecting risk managers of international companies with exposures there?
A. In recent years, there has been a notable increase in protectionism in many African markets, which has made it more complicated for buyers to access overseas insurance and reinsurance capacity as they previously did. There are a number of examples. In 2016, regulation was introduced across the CIMA region, further restricting the exportability of insurance premiums to 50%. The CIMA or Conférence Interafricaine des Marchés d’Assurances is a group of 14 Francophone nations, comprising Benin, Burkina Faso, Cameroon, Central African Republic, Chad, Comoros, Equatorial Guinea, Gabon, Guinea, Ivory Coast, Mali, Niger, Senegal and Togo.

Soon thereafter in 2017, Uganda and Kenya similarly limited premium exportability to 50%. The same year in Ghana, regulation was introduced that requires insurers to exhaust local capacity before exporting any risk shares abroad. Essentially, the lead insurer is obliged to offer shares to all other licensed competitors in the market before ceding to reinsurance. Ethiopia has had such a sharing requirement in place since 2016.

Similar legislation came into effect on 1 January 2018 in Tanzania, where capacity must be offered to the local primary market and automatically to the state reinsurer, Tan Re, before being exported, not to mention the new regulatory premium tariffs. This has essentially reduced foreign reinsurance cessions from Tanzania to a standstill, unless the risk is particularly complex in nature. In Algeria, insurance law has long regulated that capacity must first be offered to a local licensed carrier, and then any share ceded to reinsurance is shared at least 50% with the local state reinsurer, CCR (Compagnie Centrale de Reassurance).

Q. How can risk managers react to these changes?
A. React is the key word because being proactive about the changes is often not realistic. There are an increasing number of African markets where reinsurance cessions to global programmes are under pressure. The expectation from a number of Pan-African experts is that this trend will continue and be adopted across the continent. In some markets the pace of implementation may catch global programme players and clients by surprise. Patience, understanding and flexibility from global clients are going to be important factors as we seek to deliver compliant solutions to the changing landscape.

Q. How can a global programme structure help risk managers to effectively obtain coverage for risks in Africa?
A. The rising protectionism is certainly making the implementation of global programmes more of a challenge, but we still firmly believe that there are major benefits to using such structures. Global programmes remain the most effective way for risk managers with activities across multiple countries to maintain comprehensive oversight of their corporate exposure; they remain the more consistent method to implement appropriate levels of coverage compliantly across multiple, varied markets and, when done correctly, they allow an increased opportunity to steer the programme’s claims philosophy from the top down. When a global programme underwriter has a strong local partnership or even its own presence, it enables close collaboration to ensure that coverage is appropriate, and that market practices are adhered to and incorporated as closely as possible to the overall global programme intentions.

Q. What are the key things risk managers and their insurers must take into account to ensure a global programme incorporating African exposures is a success?
A. Communication is absolutely critical. There are simply more hands touching a global programme and it is all too easy for the information flow to break down. It’s both internal communication and external. Risk managers need to be speaking consistently with their local entities to verify they are buying into the planned programme’s goals and expectations. Global programme insurers need to be encouraging underwriters, administration and finance teams as well as claims specialists to exchange status updates regularly.

Brokers need close coordination between their master and local entities regarding capabilities and details like local Know Your Client requirements that can easily derail programme implementation. And all of these parties should be coordinating with each other to make a global programme run smoothly. The timeline to clarify local capabilities and implement instructions increases in markets that are experiencing rapid change. A single, seemingly benign clarification can take a few days to resolve in some cases. And the African markets are certainly experiencing rapid changes in their approach to insurance and reinsurance. It can create a lot of frustration when expectations are not managed well in advance.

Global programme insurers, therefore, have a key role to play in how those expectations are addressed and in driving the communication across all parties involved. Risk managers and brokers who are fully prepared with risk information well in advance of programme inception dates can alleviate a lot of risk factors on a programme implementation. Having a long-term, local partner with a deep understanding of their market, who proactively communicates, paves the way to a successful and compliant global programme.

Contributed by Erich Bentz, network partner relationship manager for EMEA and regional director of global programmes at XL Catlin in Vienna