Into Africa: developing a local presence

The economic, political, cultural and geographical diversity among Africa’s 54 countries is vast. To talk of a business strategy that covers each part of this huge continent is unhelpful for most companies, yet with a combined gross domestic product (GDP) of approximately $2 trillion, more and more re/insurers are taking the challenge of establishing a foothold in the region extremely seriously.

According to rating agency AM Best, a number of African economies are growing by as much as five to 10 percent per year—much faster than more mature markets. This growth, driven largely by energy, construction and mining projects, has made some of these countries extremely attractive to insurance groups in the US and Europe, especially those struggling with dampened growth in their home markets.

According to the World Bank, Africa was the world’s fastest growing continent in economic terms in 2013 and its GDP is expected to rise by an average of more than 6 percent annually between 2013 and 2023 (see Chart 1 on page 32).

With significant opportunities for insurers and reinsurers, particularly in fast-developing sub-Saharan markets such as Kenya, Nigeria and Ghana, it is unsurprising that the region is seeing strong cross-border activity, with Africa-based insurance groups expanding by buying other regional insurance companies and international brokers and reinsurers cementing their relationships in the region.

“Sub-Saharan Africa in particular is becoming a very fertile ground for international reinsurers because it’s an emerging area which is going to be generating income in reasonable volume in categories of risk that people like, such as energy, mining, natural resources,” says Peter King, managing director of international reinsurance broker CKRe.

“They’re also attracted by the fact that if they’re going to be supporting local rates then these rates are going to be a little higher than those in the more competitive areas of the world. For the big risks, they (the international reinsurers) will be in control of the risk management and rating process, so they’re getting what they want.”

King says a number of re/insurers and brokers are forging commercial ties and enhancing their working relationships with local entities. He says that despite this, the bulk of the physical investment is still coming from within Africa, with the insurance companies and banks taking, or increasing, shares in reinsurance and insurance institutions.

“African Re and PTA Re, which are the most sizable African reinsurers and cover the whole continent, have been busy over the last five years diversifying their mainly African capital base to attract more non-African capital. In the case of African Re, they were able to illustrate that they have diversified their capital base, so it is no longer defined as a pure African capitalised reinsurer, which directly led to S&P rating it above the general sovereign rating of Africa.”

King says that PTA Re has also been busy talking to international financial institutions which are interested in investing in the company, thus following the African Re model. “They’re about to announce some news on diversifying their African capital base,” he says.

Investing in a local presence

Lloyd’s of London has announced that its interest in the Middle East and North Africa (MENA) region would be supported with the opening of a branch office in Dubai “to better serve the region as well as promoting the brand and expertise more generally across the region”.

Several others have also taken a keen interest in the evolving African market. XL, Continental Reinsurance and GIC Re have all opened offices in the region in recent months to support and extend their presence in these markets.

Continental Reinsurance, Africa’s largest private reinsurer outside South Africa, opened a regional office in Tunis and introduced a Sharia-complaint Takaful offering.

Dr Femi Oyetunji, group managing director and CEO of Continental Reinsurance, says that the central position of the office will help the company to extend its reach into the Maghreb and North African markets.

“Being close to our clients allows us to improve our insight into local markets, better understand their needs and local risk requirements, and deliver locally relevant offerings,” he says.

“It’s important for Africa’s development and growth to have strong, robust and large reinsurance institutions so that African premiums remain in Africa.”

The launch of the Tunis office is coupled with the introduction of a Takaful offering—a market that has seen exponential growth.

The rapid development of Takaful has led to increasing demand for Retakaful capacity, particularly in the region of North Africa which has a majority Islamic population, in the range of 95 to 99 percent.

Global Takaful premium is presently estimated at $9.15 billion and is projected to grow to $25 billion by 2015; African income is projected to grow at the same pace.