Sub-Saharan reinsurance markets becoming less attractive to new entrants: AM Best

A new AM Best report has highlighted that the challenging operating environments across sub-Saharan Africa markets have been further exacerbated by the COVID-19 pandemic — reducing the attractiveness of the region to potential new entrants.

The region has, for many years, provided global reinsurers with an opportunity for diversification and profitable revenue growth. However, according to an AM Best report, the competition and rising acquisition costs have led to a gradual deterioration in the performance of market participants.

The agency noted that the operating environments across sub-Saharan Africa remain difficult for domestic and international companies, and more recently have been exacerbated by the COVID-19 pandemic, albeit with varying severity.

The report stated that many of the region’s markets face double-digit inflation and local currency depreciation; for some countries, government instability and corruption have contributed to social unrest and political uncertainty.

Despite these challenges, there remains significant growth potential for the re/insurance sectors due to the region’s substantial natural resources, a young and growing population and the gradual development of regulatory regimes, it added.

The report also highlighted that regional capacity is limited. "The capital base of sub-Saharan African reinsurers is typically too small to meet the needs fully of the local primary markets, where construction and energy risks often require significant capacity.

"Established and internationally experienced companies are able to contribute the know-how needed to manage complex risks and offer greater capacity than local market participants. With a few notable exceptions, local and regional reinsurers act as followers, subscribing to the terms and conditions arranged by the lead reinsurer," it said.