Ratings agency A.M. Best has reported that insurers and reinsurers within the Conférence Interafricaine des Marchés d’Assurances (CIMA) zone, exhibited steady profitable growth despite a challenging operating environment characterised by significant economic and political headwinds.
The agency’s report notes that, although this lower economic activity has reduced growth, relatively low claims levels have allowed operating performance to remain favourable.
Additionally, A.M. Best expects the market to benefit from recent legislative changes in the region that are designed to bolster insurers’ capital and increase premium retention in the CIMA zone.
Senior financial analyst at A.M. Best Charlotte Vigier, said: “The growth experienced in the CIMA insurance market has not been to the detriment of earnings, with operating profitability underpinned by solid technical results and good and stable investment returns.”
The credit fundamentals of re/insurers in CIMA countries are expected to remain resilient in the medium term, and premium volumes are expected to rise over 2018 as macro-economic conditions in member states improve and drive non-life recovery.
Concurrently, A.M. Best predicts that demand in the life re/insurance segment will increase as awareness of the benefits of insurance protection becomes more prevalent in the regional populace.
Ghislain Le Cam, director of analytics at A.M. Best, said: “Local insurers and reinsurers are exposed to a challenging environment, which is subject to instability. In particular, political risks and social unrest have the potential to rapidly and adversely affect a company’s financial strength.
“Enterprise Risk Management (ERM) is the key rating factor on which the reforms made to the CIMA Code in 2016 may ultimately have the most impact. Based on A.M. Best’s experience, governance and ERM are areas where CIMA companies tend to lag behind their global peers.
“The regulatory changes implemented should encourage insurers and reinsurers to strengthen their technical capabilities, which, in the longer term, should translate into improved risk management and governance practices. This could be credit positive.”
Stable pricing and sound loss ratios are also expected to support good operating profitability for direct insurers in the CIMA zone, and A.M. Best believes they will benefit from requirements to increase paid up capital to CFAF 5 billion by 2021.
Despite these positive forecasts, the ratings agency warns that country risk will remain an offsetting credit factor.
