Analysts at AM Best have flagged a host of uncertainties that may impede the near-term prospects of the reinsurance market in Sub-Saharan Africa (SSA), despite its significant expansion over the past decade.
The rating agency notes that gross written premium in the SSA reinsurance market has grown at a 10-year compound annual growth rate of 6%.
This has been driven predominantly by the non-life insurance segment, with the life segment at a nascent stage of development in many of the region’s countries
But while AM Best expects steady real GDP growth, together with international investment in local infrastructure projects, to continue, uncertainties such as wavering global economic activity and weakening local currencies have the potential to put the brakes on near-term real growth rates, it says.
In particular, volatile oil prices, double-digit inflation, as well as the impact of the COVID-19 pandemic on various local economies, have put pressure on the results of SSA reinsurers in recent years.
Additionally, the Russia-Ukraine conflict has exacerbated inflationary forces initiated by COVID-19-related supply chain difficulties.
And, while a focus on local African risks has underpinned profitable underwriting results, there is a degree of concentration towards some of the largest markets on the continent, giving rise to some concern about risk accumulation
“Despite solid growth in capital in recent years, the capacity offered by Africa-domiciled reinsurers remains low and local players often rely on the support of global reinsurers,” AM Best warned.
“The typically high cost of doing business in SSA, along with the relatively small size of locally domiciled reinsurers, tends to temper overall underwriting results,” it added. “Many market participants are unable to realise the economies of scale that larger global companies can achieve.”
Notwithstanding these near-term pressures, over the long run, AM Best still believes the SSA reinsurance segment has substantial potential for profitable growth.
Specifically, analysts pointed to the untapped reserves of natural resources across much of the region, as well as solid long-term economic growth prospects, and increasing underlying insurance penetration, all of which stand to benefit its reinsurance market.