African insurance and reinsurance markets remain challenging and are expected to adopt an increasingly protectionist stance, however, a strong reliance on the global reinsurance industry will more than likely persist, according to A.M. Best.
Over the last ten years or so the African reinsurance sector has experienced material expansion, although during the last 12 months reinsurers across the continent have endured slower growth momentum, driven by the difficult economic surroundings and the resultant reduced demand for oil and gas, explains A.M. Best.
Increasingly, it appears the African marketplace is adopting a more protectionist stance, underlined by the establishment of national reinsurance companies across the region, domestication policies, and the utilisation of risk pools as a means of retaining more premium within the continent.
But despite this, the African reinsurance sector remains attractive to foreign reinsurers, which seek diversification at the same time as establishing a regional footprint somewhere that experiences relatively benign catastrophe activity, when compared with other more emerging markets, such as Asia and Latin America, for example.
“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,” said A.M. Best, in its special report on the African reinsurance industry.
Domestication policies, which are specifically designed to promote the retention of more business locally, aren’t always adhered to, explains A.M. Best. Furthermore, high-value corporate risks, which lack local retention, requires expertise and sophisticated underwriting that might not exist in local African markets, highlighting the necessity of foreign players in the region.
“A.M. Best anticipates there would be further protectionist policies put in place following the establishment of new national reinsurers and legal cessions. The implementation of restrictive regulatory policies is hindering growth objectives from competitive overseas reinsurers, seeking to diversify outside of their home 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,” continues the ratings agency.
The African reinsurance market remains a challenging one to operate in, and A.M. Best underlines potential for the market to soften in the months ahead, although this remains uncertain. For foreign players it is likely to remain an attractive, diversifying industry, and despite a trend of growing protectionist measures, the ratings agency expects the reliance on global reinsurers to persist as the African market looks to expand and mature.
