There are strong indications pointing to the growth of the Africa’s Reinsurance Market in the next five years. The latest reports from African Reinsurance pulse launched at the 21st African Reinsurance forum in Dakar Senegal have stated that the market is expected to benefit from strong underlying growth driven by an expansion of its primary markets with insurance premiums of USD 64 Billion.
Africa Reinsurance pulse is an annual survey conducted by Dr. Schanz, Alms & Company and facilitated by Africa Insurance Organization, Africa Re, Swiss Re, Casablanca Finance City (CFC) and Qatar Financial Center. The study was based on in depth interview with 22 Reinsurers and Brokers operating in the region that provided a unique overview of the trends and drivers of Africa’s USD 8.3 Billion reinsurance market.
Africa pulse report also stated that the market’s growth will be based on abundance of natural resources, the need for infrastructural investment, emergence of an expanding middle class and a young and growing population.
However, the regions GDP is expected to increase by roughly 2% per annum from 2016 to 2020, ahead of the world’s average growth rate of 3.6% for the period. Africa’s low insurance penetration of 2.9% as a share of insurance premiums to GDP indicates the enormous potentials of the continents in catching up with the global average of 6.23% for 2015.
“More than 90% of Africa’s insurance Companies have only been created in the past 40 years,” said Corneille Karekedzi, Group Managing Director & Chief Executive Officer of Africa Re. “As a result, our industry still has to build the awareness for the benefit of protecting and enabling economic progress. The Africa Reinsurance pulse provides succinct data and information on our continent’s reinsurance markets and contributes to these goals as it demonstrates our industry’s potential and also its challenges.”
The Africa reinsurance pulse found that the fundamental strengths of the African reinsurance markets remain intact, despite the recent economic slump. New larger and more complex risks have arisen, requiring insurance protection while the broader African middle class is eager to protect its assets and make provision for the future. Abundant resources, a juvenile and growing population and the need for investment in infrastructure, energy, health and educational facilities drive the demand for insurance protection and reinsurance cessions.
However access to local expertise, reliable data and statistics are regarded as weakness of the market. In addition, frequent foreign exchange trading restrictions and vulnerability of fragmented and relatively small markets to sudden swings in export demand, commodity prices and exchanges and exchange rate fluctuations may result in unwanted volatility. Also, political instability is the biggest threat to the regions insurance reinsurance threat to the regions insurance and reinsurance markets and strongly affects growth expectations.
Furthermore, protectionism in the form of priority or compulsory cession is feared to harm the domestic markets, although it may also limit the impact of global excess capacity.
The majority of the interviewees feel that current reinsurance rates are below the average of the last three years. Risks are still far more adequately priced, but competition is mounting as regional and international players fight for market share. However, on a global scale, markets are still perceived as profitable due to stable loss ratios and the regions limited exposure to natural catastrophes.
However, profitability is coming under pressure as new capacity enters the market and international reinsurers deploy additional capacity to established markets or to new ones where they intend to expand. In defending their turf and supported by regulatory provisions, domestic capacity is expected to outgrow international capacity in their new term.