Reinsurance in Sub-Saharan Africa (2010-2019)

The growth potential of insurance is sustained by the continent's huge reserves of natural resources and by the existence of a young and dynamic population.

Industrialization is progressing, investments in infrastructure are multiplying, the middle class is slowly emerging, and its purchasing power is increasing, which has benefited insurers and reinsurers for more than a decade.

Sub-Saharan Africa: reinsurers' profitability

While Sub-Saharan Africa has always offered diversification and profitability to reinsurers, growing competition and rising acquisition costs have reduced the attractiveness of this vast market. Indeed, even if volumes remain modest on an international scale, margins, which were previously high, have steadily declined.

Over a 10-year period, gross written premiums have increased by nearly 7%, driven exclusively by the non-life business, despite the depreciation of many African currencies against the dollar.

As in the MENA area, several countries in Sub-Saharan Africa grant legal cession to national or regional reinsurers.

Premiums and retention rates for insurers rated by A.M Best: 2010-2019

Sub-Saharan Africa: reinsurers’ premiums and shareholder’s equity in 2019

The current pandemic is likely to undermine local economies: lower demand for raw materials, decreased international aid, reduced direct investment, increased risk of inflation and currency depreciation. All these factors are likely to have a negative impact on economic activity.

The International Monetary Fund expects the region's real GDP to increase by 1.8% in 2020 compared to 6.5% in 2019. The slowdown in the economies will have consequences on the sale of insurance products. In the short and medium term, these sales are therefore likely to decline and premium collection will deteriorate.

Regional reinsurers are mainly focused on underwriting business in the African sub-continent which is not very prone to natural disasters. This explains the low loss ratio of these reinsurers which is on average 59% in 2019. For the record, the loss ratio of the top 50 reinsurers worldwide is about 70%.

However, the increase in business acquisition costs imposed by local brokers has eroded the combined ratio year after year for the past five years. The latter has gone from an average of 91% to nearly 99% in recent years. This trend is aggravated by imported inflation, which penalizes entire sectors of the economy.

Combined ratios: 2014-2019

Return on equity

Some regional reinsurers have been penalized by an increase in claims of intermediate intensity as well as by hazardous expansion outside the African continent.

Despite some strong headwinds, the return on equity of sub-Saharan reinsurers remains high with a rate of 10.7% on weighted average over 5 years. This indicator largely exceeds that of the 50 largest reinsurers in the world, having reported a 5-year weighted average return on equity of 6.8%.

This performance is largely attributable to Africa Re and Zep Re whose balance sheets are expressed in US dollars, thus limiting some of the effects of inflation.

Return on equity: 2014-2019

Sub-Saharan Africa: Ratings of the main regional reinsurers

The rating of sub-Saharan reinsurers is strongly linked to the political, economic, and financial constraints of the countries in which they are registered.

With the exception of Africa Re and the South African reinsurance subsidiaries of leading professionals, no African reinsurer has an A rating.