Results from an African Reinsurance perspective over the past three years have been mixed with large market losses, evidenced in the South African mining sector and the beverage industry in Nigeria.
Coupled with these unfortunate losses, the global financial crisis had a worse than expected effect on the African economy as the world recession hampered the growth trend which began some five years ago. Economic growth for the continent stood at 5,2% and 6,3% on average in 2008 and 2007 respectively, whilst this reduced to 1,7% in 2009, affecting largely countries such as Mauritius and South Africa, which are more closely integrated into the world economy.
Despite this, Africa is still better off now than it was a decade ago, but in order to sustain this trend, Africa will have to revisit some of its current economic practices. The recent foray of China, India and lately, Brazil, into the continent has yet to be directly felt in the insurance sector. Excluding the aforementioned losses, the African insurance industry remained fairly benign from a catastrophic loss point of view, but was not spared the resultant increase in catastrophe reinsurance rates following international natural catastrophes.
We believe that there could well be continued upward movement in rates, with particular regard to catastrophe programmes following the natural catastrophes in the first half of 2010 namely, earthquakes in Haiti, Chile and China, flooding in Central Europe and several States in the USA.
More importantly, from an Oil and Energy point of view, we believe that this sector, not only internationally, but including the oil rich countries of Africa, will be particularly hard hit from a rating perspective following the BP Oil Spillage in the Gulf of Mexico.
Having said that, we see opportunities for the African Insurance and Reinsurance markets in this sector given the increased development and exploration activities in countries such as Ghana, Sierra Leone, Liberia, Cote d’Ivoire, Uganda and the Democratic Republic of Congo. Interestingly, countries such as Ghana and Nigeria are attempting to develop local capacities and skills base in order to retain more of the Oil and Energy business locally with the continued support of the International market.
From a South African perspective, we believe that this market will, as in the past, be guided by the international trend, but we envisage a relatively flat renewal from a rates perspective with increases being levied on a contract specific basis rather that across the board or “portfolio” basis. In other words, loss-making business will be rated accordingly.
Perhaps one of the major challenges facing the African Reinsurance market specifically is competition, particularly from the international market where reinsurers seek to continue to diversify their portfolios with business from relatively non-catastrophic territories in Africa.
From a South African perspective, apart from continued international competition, we see our greatest challenges emanating from a paucity of insurance skills together with the proposed implementation of the Solvency Assessment and Management programme which in itself will require a specialised but scarce skills set which is short in supply.
Having said that, we believe that continentally, African Reinsurance Corporation is uniquely placed to offer specialised reinsurance support and skills, not only in the field of property and casualty reinsurance, but, more particularly, in the field of oil and energy business together with supplying Takaful insurance solutions to the growing Islamic insuring public through our newly formed Retakaful Company in Cairo.