Africa’s reinsurers predict rising rates, profitability

Africa’s reinsurance and brokerage executives predict rising rates and profitability on the back of rebounding markets and a resurgent economy, according to the third edition of the Africa Reinsurance Pulse report.

Across Africa, the International Monetary Fund (IMF) expects gross domestic product (GDP) to rise from 2.8 percent in 2017 to 3.4 percent in 2018, benefiting from global growth, higher commodity prices and an improved access to capital markets. In 2017 Africa’s reinsurance premiums increased to an estimated $7.5 billion from $6.8 billion in 2016, also driven by a strengthening of major currencies against the US dollar.

An abundance of natural resources, continued population growth, rising affluence and still unmet needs for infrastructure investments as well as digitisation are expected to drive the growth of assets and insurance penetration, according to a survey including reinsurance and brokerage executives.

Personal lines are expected to benefit from the growing size and affluence of Africa’s middle class, the report says. Higher affordable income is expected to translate into rising car sales, property purchases, but also demand for health protection as well as life or savings products. Technology creates further opportunities as on the back of Africa’s high mobile phone penetration, financial inclusion improves and enables new products in agricultural insurance, credit, as well as in life and health. In commercial lines, investments in infrastructure remain high as roads, utilities, schools and hospitals need to be built to serve a growing population, provide access to the resources and encourage an expansion in manufacturing.

However, a global excess reinsurance capacity affects Africa too, the report notes. Markets suffer from price distortion and aggressive competition. While tighter solvency regimes are viewed positively, the rising protectionism, which spreads across the continent poses a threat. Installed to contain the flight of premiums to offshore destinations, requirements to retain premiums locally have become an obstacle to reinsurers which provide capacity across Africa. Political instability – although improved – still presents a threat, as some of the recent handovers of power lingered on the verge of open conflict.

Nevertheless, pricing has improved across Africa. The number of reinsurers, who regard rates as low has dropped from 75 percent to 40 percent of interviewees. Following the natural catastrophe events of 2017 and soaring claims, rates increased, particularly in South Africa. In addition, as commodity prices recover, executives expect stable or rising rates due to higher employment, investments in infrastructure and the resurgence of exports and trade.

Profitability is expected to strengthen, too. With the exception of South Africa, which suffers from last year’s heavy claims, profitability is positive for most of African markets with combined ratios below 100 percent. As the economy accelerates, higher rates and a decline in loss ratios is expected to strengthen profitability. Risk exposures are expected to grow in line or even faster than GDP, as value creation translates into insurance demand. As a result a majority of interviewees predict that reinsurance premiums will grow in line or faster than GDP and that accordingly penetration may improve. Still, reinsurance capacity is expected to continue to rise as the continent’s underpenetrated insurance markets continue to attract capital.

However, additional capacity is also created by domestic reinsurers, which are set-up to retain more risk nationally. A majority of interviewees expect that non-African reinsurers will outgrow the regional capacity. As the economy picks up again, the large industrial risk exposures, which are ceded internationally, will rebound faster than the smaller, domestic risk exposures and thus primarily benefit foreign players.

Primary insurers are seen to retain more risk. Risk management has improved and as insurers strengthened their balance sheets, they are able to carry more risk, the report states.

Get all the latest re/insurance industry news with our daily newsletter -  sign up here.

More of today's news

GIC Re retains first right to reinsurance business in India

Typhoon Trami hits Japan

Greenlight Re invests in Hong Kong-based blockchain Galileo

Guy Carp appoints international cyber strategy, innovation leader

PICC gets green light for Shanghai IPO

Don't miss our insurtech email newsletter - sign up today