Insurance business has its elements of risk just as any other sector of the economy. And as insurance firms in Africa strive for sustainable growth of their businesses in volume and revenue, they also confront a myriad of human and non-human challenges on the road to their corporate goal.
In such uncertain market circumstances, reinsurance becomes the safety net for underwriters to leverage on to upscale market challenges and increase both market share and bottom-line.
In this report, Prince Cookey of Business Journal Nigeria examines the critical role of reinsurance in growing sustainable insurance business in Africa.
Reinsurance is a key factor in sustainable growth of the insurance industry in Africa.
It supports and assists insurance operators on the continent to drastically reduce their financial risk and exposure in insurance business.
This function helps operators in the insurance sector to spread their risks, minimise losses in terms of large claims payout, remain solvent and enjoy sustainable growth in the market.
In a speech at a conference on The Role of Reinsurance in Promoting Healthy Markets on September 5, 2024, Petra Hielkema said:
“It is indisputable that reinsurance plays an important role in the insurance industry and broader economy by providing risk management solutions that promote healthy markets and support infrastructure development, sustainability, financing, and cyber protection.”
Hielkema added that reinsurance inherently possesses a global dimension, which is vital for the stability and growth of international markets. And with their global reach, reinsurers provide substantial capital and expertise, making it possible for insurers to underwrite larger and more varied policies. This, in turn, fosters market innovation and stability.
“In 2023, reinsurance accounted for 18.8% of the total gross written premiums within the insurance and reinsurance sectors across the EEA, amounting to 229.5 billion euro. This indicates a broader trend toward increased risk cession. And it is particularly evident in the EEA, where 62% of reinsurance transactions take place within the EU itself, while the remaining 38% are conducted with third countries (20.7% with countries with equivalent regulatory regimes and 17.3% with non-equivalent). The US and the UK remain significant partners here, accounting for 14.6% of the total.”
The African Reinsurance Market
A report by Atlas magazine states that ‘Africa, which accounts for just 1.5% of global premium, has the highest number of reinsurers per continent, with 51 entities by the end of 2023. By comparison, the American and European continents, with 39 and 26 reinsurers respectively, underwrite 40.2% and 43.4% of global reinsurance premiums.’
Main indicators of the African reinsurance market
Figures in millions USD
| 2014 | 2018 | 2022 | 2023 | 2014-2023 evolution (1) | |
| Gross premiums | 3 690 | 4 471 | 5 815 | 5 712 | 5% |
| Africa’s share of global reinsurance business | 1.78% | 1.67% | 1.60% | 1.51% | -1.80% |
| Share capital | 1 079 | 1 262 | 1 613 | 1 579 | 4.30% |
| Shareholder’s equity | 2 696 | 3 351 | 3 611 | 3 983 | 4.40% |
| Net result | 347 | 244 | 303 | 496 | 4% |
| ROE | 12.90% | 7.30% | 8.40% | 12.50% | -0.40% |
(1) Average annual growth rate
Challenges of the African Market
According to Atlas magazine, African reinsurers are operating in a harsh socio-economic environment marked by inflation, political instability, increased competition and the depreciation of local currencies against the dollar. For instance, in just one year, the South African Rand, the Nigerian Naira and the Kenyan Shilling have lost respectively 7.21%, 50.22% and 21.37% of their value against the US dollar.
Despite the steady increase in African reinsurers’ equity capital in recent years, the capacity available to local ceding companies remains low. They are struggling to absorb specialty risks and the major risks generated by industrialisation and infrastructure development.
Fitch Ratings said in a September 9, 2024 report that African reinsurers’ business concentration risk weighs on their credit profiles, with dependence on a few commercial sectors, leaving reinsurers vulnerable to external shocks.
The Growth Prospects
On growth prospects for reinsurers in Africa, Fitch said: “Growth opportunities into new lines of business and new geographies are emerging, and there is significant scope for growth of facultative reinsurance covers for complex insurance risks to their cedents. Combined with more developed underwriting skills, this may lead to a better risk diversification and ultimately, stronger credit quality of these player. The recent market hardening of the global reinsurance market may create an opportunity for local African reinsurers as global carriers have redirected more capital to developed markets, easing the competitive pressure in Africa.”
