Africa’s reinsurance executives continue to be bullish about the prospects of their markets, expecting Africa’s US$6.8 billion reinsurance market to make a comeback in 2018 after insurance premiums declined by 15.3% in 2016 following a drop in the continent’s gross domestic product (GDP) growth, according to the Africa Reinsurance Pulse report.
The Dr. Schanz, Alms & Company reinsurance market report, based on in-depth interviews with 20 reinsurers and brokers operating in the region, shows optimism levels remain high for the fledgling market with the expectation for 2018 being that results will improve markedly as underlying market fundamentals remain largely unscathed from the current decline.
In 2016, Africa’s GDP growth dropped to 1.8% below the global average of 2.5%, while insurance premiums declined by 15.3% to US$61 billion, the report said.
While a surface level glimpse of the African market shows contracting premiums in 2016, reinsurance executives said this is mainly due to the depreciation of currencies against the dollar, and in original currencies, most African insurance markets have continued to grow.
Market growth is forecast to be driven by; “Low insurance penetration, the recovery of commodity prices and the continent’s need for infrastructure,” as well as “Africa’s young and growing population, its expanding middle class and technological innovations, which alter consumer habits, drive demand and create product opportunities as well as new avenues for distribution.”
Meanwhile, challenges stem from the constant influx of excess capacity driving increased competition, and in some areas this has led to a growing trend of protectionism.
For some of the executives surveyed, this threatens the market as “they exclude themselves from access to foreign expertise, limit the potential for risk diversification and thus increase the exposure within the ‘protected’ domestic economy.”
Pricing seems to be stabilising in the continent following a three-year period of premium rate decline, due to large losses leading to rising claims as well as the introduction of Risk-Based Capital regulation.
Reinsurance executives operating in Africa believe the bottom of the pricing cycle could be approaching; “Driven by an increase in rates in life insurance, cost reductions, tighter underwriting discipline and a steady recovery of the economy, returns are expected to improve.”
The report found that although there is no uniform trend across the reinsurance sector in Africa, rising protectionism and excess capacity are major concerns, while underwriting quality, risk management and expertise are seen to be improving.
In addition, an expanding middle class, a deeper understanding for insurance products and the emergence of new technologies will benefit insurance markets and help increase insurance penetration.
