Best’s Special Report: Economic Pressures on African Reinsurance Markets Remain, but Growth Potential Lures Overseas Players

LONDON--(BUSINESS WIRE)-- The African reinsurance market has experienced material growth over the past decade. However, the operating environment remains challenging, with significant headwinds of currency volatility and inflationary strains amid global softening market conditions.

In the past year, the continent’s reinsurers have been affected by slower growth, reflecting challenging economic conditions and subsequently suppressed demand for oil and gas. In addition to reduced cover for large value risks, there has been a higher frequency of attritional and large claims, as well as increased cost bases together with the need to strengthen reserves given inflationary effects.

A.M. Best’s findings, published in a new special report titled “Economic Pressures on African Reinsurance Markets Remain, but Growth Potential Lures Overseas Players,” states despite this backdrop, the reinsurance market in Sub-Saharan Africa continues to offer growth potential, drawing in overseas reinsurers.

Mahesh Mistry, senior director of analytics, said: “Although domestication policies are designed to retain business locally, overseas reinsurers provide capacity and technical expertise. They seek to deploy surplus capital, establish a global footprint, and consider the region to be relatively benign from natural catastrophes. While domestication policies, the use of pools and the creation of national reinsurers aim to retain risks in Africa, in general, retention levels for high-value risks remain low. Therefore, A.M. Best expects there to continue to be a heavy reliance on the international reinsurance market.”

The report examines how most African (re)insurers are looking beyond their physical borders for growth. A.M. Best has observed that companies operating in West Africa are attempting to underwrite risks in East Africa and vice versa. Those based in East Africa are also drawn to Asia as a result of historical migratory trends, retained networks and connections with countries such as India and Nepal.

The report also notes that the region’s regulatory framework is evolving, although this varies depending on the country. Yvette Essen, director of research and report author, said: “A.M. Best believes there is a drive to adopt risk-based capital models in line with European market regulatory trends as regulators in the region want to ensure a perception of high standards. However, it can be challenging to implement a new regulatory framework in conditions where a scarcity of workers with the key skills, understanding and experience is not uncommon.”

In A.M. Best’s opinion, the credit quality of reinsurers in the region remains varied. This is partly a reflection of the different levels of economic and insurance development experienced in these markets. While many reinsurers have successfully navigated turbulent economic and political times, the market environment remains volatile and uncertain. The advanced use of risk management tools, prudent underwriting practices and the development of insurance markets are critical to ensure the sustainability and profitability of reinsurers over the longer term.

To access a complimentary copy of this special report/briefing, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=266368.

A.M. Best is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2017 by A.M. Best Rating Services, Inc. and/or its subsidiaries.

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A.M. Best

Mahesh Mistry, +44 20 7397 0325

Senior Director, Analytics

mahesh.mistry@ambest.com

or

Yvette Essen, +44 20 7397 0322

Director, Research & Communications - Europe & Emerging Markets

yvette.essen@ambest.com

or

Rishwinder Grewal, +44 20 7397 0321

Financial Analyst

rishwinder.grewal@ambest.com

or

Edem Kuenyehia, +44 20 7397 0280

Director, Market Development & Communications

edem.kuenyehia@ambest.com

Source: A.M. Best