Reinsurance markets in Sub-Saharan Africa have experienced material growth over the past decade despite the ongoing challenges of a difficult operating environment, competitive pressures on underwriting activities, and economic and political instability, according to a report by A.M. Best.
In recent years, much of the region has faced high inflation, currency devaluation, and electoral disputes, although some countries have also experienced economic growth of up to 10% and regional reinsurers have generally reported respectable financial performances.
A.M. Best said that it considers the Sub-Saharan African reinsurance market to offer growth and diversification opportunities for both regional and international reinsurers.
Although the region’s insurance sector appears to have experienced depressed growth, this largely reflects the depreciation of local currencies relative to major international currencies, as the insurance markets show moderate levels of growth when viewed in local currency terms.
The rating agency also expects insurance penetration rates in the region to increase gradually as a consequence of growing investment in infrastructure following the discovery of natural resources and the resulting boom.
Reinsurers are likely to see more opportunities to underwrite construction and engineering risks in the short-to-medium terms, while a number of upcoming national elections are expected to increase economic momentum and stability.
Rishwinder Grewal, Financial Analyst at A.M. Best, commented: “Legal treaty cessions, domestication policies and recent regulatory changes support regional insurers’ and reinsurers’ efforts to develop their profiles and support their respective markets.
“Growth opportunities, however, are somewhat tempered by a lack of policy enforcement and greater competition from larger, global reinsurers,” Grewal added.
In general, the reinsurance sector in Sub-Saharan Africa is comprised of both local and regional participants, with a growing presence of overseas reinsurers, although local markets tend to be highly saturated and dominated by a handful of companies, A.M. Best said.
The report also noted that improvements in mobile technology, applications, and telecommunication infrastructure will help overcome the region’s low insurance penetration rates, which it said is largely driven by a lack of trust among customers and low financial literacy.
A.M. Best also expects the region’s cyber reinsurance market to expand significantly in future as companies develop the kind of information and data analytics capabilities required to accurately price cyber products.
