Re/insurers pile into Africa despite gloom
Commodity prices have impacted African countries’ economic growth but this has not reduced re/insurers’ appetite for expansion on the continent, Corneille Karekezi, Africa Re chief executive officer, told Monte Carlo Today.
Nigeria has just entered recession driven by low oil prices, South Africa’s economy is being impacted by low commodity prices and Algeria and Egypt are experiencing a liquidity crunch which is affecting premium collection, Karekezi said. The World Bank forecasts a GDP growth of below 3 percent for the continent in 2016.
On top of this, markets in Africa are currently not easy for reinsurers to move into. Competition in the reinsurance sector is growing and accelerating as it suffers from overcapacity, Karekezi said. Capacity of traditional reinsurers in Africa has increased by around 30 percent in the last three years, and is pressuring rates, particularly in property/casualty, weighing on profitability, he noted.
Nevertheless, the continent remains attractive for international reinsurers.
“Top tier reinsurers are very active in Africa,” Karekezi said, “although their business on the continent may be impacted on the top line on the back of currency devaluations such as Nigeria’s naira as economic pressure mounts.”
However, underlying premium income should continue growing, not least because primary insurers have been expanding significantly on the continent in the recent past, he said. Gross written premium growth has in the past been at least 6 basis points above GDP growth in African countries, Karekezi added. In addition, oil and commodity prices will go up again eventually, he noted.
Swiss Re is considering opening an office in South Africa and SCOR is planning to open an office in Nairobi.
If anyone wanted to sell a reinsurance franchise in Africa, the whole world of reinsurance would compete to buy it, Karekezi said. “Despite the challenges, the market believes in Africa’s future growth.”
