Beyond South Africa, local insurers traditionally tend to have weak balance sheets and small capital bases compared with the big European players. Banks remain cautious about allowing large amounts of risk to be retained within these markets when they are underwritten entirely by a local company or a panel of local insurers whose balance sheets amount to very little.
King explains that the current commissioner of Nigeria has done a lot of
work pre and post 2007 to beef up local companies and balance sheets. He adds that with the big infrastructural projects there is a “lack of deep
technical realisation of the right terms and conditions to apply”, which is where the global reinsurers come in.
INTERNATIONAL SUPPORT Powerful bodies including the US and EU are supporting Africa more than ever because they realise it is an extraordinarily rich continent with an abundance of natural mineral wealth.
King says that big oil companies are beginning to wind down their total
reinsurers in Africa that needs to be realised sooner rather than later.
He adds that political instability is now largely a thing of the past across Sub-Saharan Africa.
demanding fair and transparent government,” he says. “Over the last 30 years in Africa, there has been sustained demand to totally change the mindset of the way that economies are run.”
Despite this new-found awareness, there is still a perception of economic instability and high political risk in Africa, explaining why there has not been the same level of interest there from global players as in other emerging markets.
Imoukhuede says that it all comes down to this lack of capacity in the local
markets, as well as a lack of data and modelling to support the pricing of risks. “It ultimately goes back to the Western markets which is where the capability
resides to appropriately price those risks,” she says.
Several African countries are making good progress. On the west coast, to its involvement in so many infrastructure projects.
“They just don’t have the liquidity to service these projects at the moment,”
says King. “Nigeria, on the other hand, is full of skill and ingenuity, and is turning quite a serious corner as its leaders crack down on the country’s historical problems.”
King says he believes there is also potential for countries such as Sierra Leone and Liberia to develop their insurance business, but the Ebola crisis has knocked them back quite badly.
It is worth noting that many of these countries have grown as a result of
global commodity prices. Yet, as Imoukhuede explains, “we are now in an environment where commodity prices are coming down, so whether this growth is sustained is another question”.
“It is a factor for international reinsurers who want to diversify into those
markets to consider. Poverty levels are still high, so really, any expansion strategies by international reinsurers need to take into account and concentrate on long-term growth, not on short-term reward,” she says.
“Our strategy is to achieve 2.5 to 3.0 percent market share in three years’ time reinsurers in the continent Sunkara Rao, GIC Re
EDUCATION The role of global reinsurers extends beyond their traditional duties. They have to provide the expertise, the rating and the risk evaluation, as well as factor needed is education around insurance.
put aside some money, go to a handful of countries and lecture local insurance people on the types of insurance that the world takes for granted,” says King.
The same applies with risk management. If a local insurer cannot illustrate domestically within Africa that it has a risk management approach, it becomes
“If they really want commitment to writing their chosen line of business,
they have to get involved in general education on risk management, delivering surveys, etc,” King says. “It’s such a cheap investment but it would reap rewards straight away.”
in a more positive way by evaluating, rating and providing capacity. Africa is still very young in its insurance development compared to the rest of the world so it is important that these relationships are established and maintained.
GIC Re’s acquisition and subsequent operation of a reinsurer in South Africa in a time span of less than four months, goes to show how serious GIC Re is in its plans for global expansion, as Rao explains.
“GIC Re South Africa Ltd has successfully made its presence felt in the
market during January 2015 renewals, by giving the market a turnaround delivery mechanism and attitude in the region,” he says.
“Our strategy is to achieve 2.5 to 3.0 percent market share in three years’
order to be seen as a serious African reinsurer.”
In other continents, global reinsurers are faced with mass-market penetration and massive competition, and all that can be gleaned from these obstacles is reduced rates.
“In the UK, I think we are ideally placed to be a major player in the continent if we do things well,” King concludes. “Helping people understand why we do certain things can only be done through education, and that’s when we will unlock the whole of Africa’s potential.”
Spring 2015 | INTELLIGENT INSURER | 27
SHUTTERSTOCK / MOJCA ODAR
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