Competition and rising acquisition costs within the reinsurance markets of sub-Saharan Africa has led to a gradual deterioration in the performance of market participants, according to an AM Best report.
AM Best notes that the operating environments across sub-Saharan Africa remain difficult for domestic and international companies.
Many of the region’s markets face double-digit inflation and local currency depreciation while for some countries, government instability and corruption have contributed to social unrest and political uncertainty.
Despite these challenges, AM Best says there remains significant growth potential for the re/insurance sectors due to the region’s substantial natural resources, a young and growing population and the gradual development of regulatory regimes.
The report also notes that regional capacity is limited, with the capital base of sub-Saharan African reinsurers typically too small to meet the needs fully of the local primary markets, where construction and energy risks often require significant capacity.
AM Best adds that established and internationally experienced companies are able to contribute the know-how needed to manage complex risks and offer greater capacity than local market participants.
With a few notable exceptions, local and regional reinsurers reportedly act as followers, subscribing to the terms and conditions arranged by the lead reinsurer.
